Grow Your Portfolio the Intelligent Way

Does Donald Trump Hate Freedom?

The president seems to want a trade war with China.

The president also seems to want a war with Jeff Bezos and Amazon.com (AMZN).  

A broader way to say this is that the president seems to want to wage war on you and me.

I say this, regrettably, because what I see coming out of Washington (and, astonishingly, from a Republican administration) is an attack on American consumers, American capitalism and the freedom to choose where we buy goods and from whom we buy those goods.

Now, I would expect a war on capitalism and consumer choice from the left; that’s consistent with their creed. Yet to me, that attack is even more egregious when it comes from the right, and particularly from a president who spent his entire life in the private sector before being elected.

Just take the latest ramp up of the trade war. It first started with steel and aluminum tariffs, which at the time I argued would lead to trouble. When we saw the Chinese retaliate with a rather muted set of their own tariffs on U.S. goods, there was a second round of proposed tariffs from the Trump administration on some 1,300 Chinese goods.

So, what happened next? Well, predictably, China retaliated this morning by announcing a proposed 25% tariff on $50 billion worth of U.S. exports, including some 106 products, such as soybeans, chemicals, automobiles and planes.

Now, administration officials such as newly appointed National Economic Council Director Larry Kudlow, a free trader in his previous life, were quick to come out today and say that this is all a negotiating ploy to get a better trade deal with China.

Kudlow told Fox Business host Stewart Varney that there was “absolutely not” a trade war between the United States and China.

Well, you could have fooled me. One place that is equally un-fooled is Wall Street.

It’s not a coincidence that markets opened Wednesday’s trading session down nearly 500 Dow points. And though stocks rallied back toward the end of the session as the headline fear subsided, there is no doubt that markets know how pernicious a trade war would be. Indeed, even the threat of big tariff impositions from both sides sends a big “risk-off” signal to markets.

Yet the more important, and the more principled, concept to understand here — a concept that seems to have escaped the Trump administration — is that tariffs, regardless of their intended purpose, raise prices on consumers. They do so via direct taxation on imported goods or indirectly on imports of production goods.

And, I know this is a simple concept, but who pays those taxes? The answer is you and me.

And that brings us to the second front here, the president’s recent storm of tweet attacks on one of the greatest companies in history, online retailer Amazon.com.

Amazon is one of the greatest companies ever because it creates immense value for consumers and for shareholders. The ability to purchase just about anything you can think of, from books to clothes to household goods, including groceries and even web data services, at a competitive price and with ultra-fast, cost-efficient delivery has indeed changed the retail landscape.

Now, some would say Amazon has displaced many industries, the latest being delivery companies, large grocers and, of course, so-called “mom-and-pop” retailers.

Hey, I agree. And you know what I call that? Capitalism.

More specifically, it is what the great Austrian economist Joseph Schumpeter called capitalism’s “gale of creative destruction.”

Of course, those who defend the president’s singling out of Amazon have argued that the company is getting unfair advantages in the marketplace by receiving a bulk rate for package deliveries from the U.S. Postal Service.

Yet Amazon is paying the discounted bulk rate that it qualifies for due to the volume of packages it sends each year. Should Amazon be forced to pay more for this just because the president thinks it’s unfair? I think not.

Finally, ask yourself how Amazon got to be the dominant force in the online retail space. Did they do it at the point of a gun? How did Jeff Bezos become the richest person on earth, according to Forbes?

He did so because of you and me. He did it because consumers freely chose to embrace his company via buying and selling goods on Amazon and because investors freely chose to buy Amazon.com (NASDAQ: AMZN) shares.

I think that anyone who wants to stand in the way of that freedom might rightly be questioned about having a problem with freedom itself.

I hope I am wrong.

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ETF Talk: Highlighting a Fund for Those Bullish on the Dollar

The PowerShares DB US Dollar Index Bullish ETF (UUP) marks the start of a series of currency funds that we will cover in our next several ETF Talks. UUP tracks an index of USDX futures contracts that rises in value as the U.S. dollar appreciates.

Currency trading can be highly volatile and is not suitable for all investors. However, currencies also don’t really follow the market ups and downs, and are instead driven by their own factors, such as interest rates and political instability on a global-macro scale.

Trading directly in foreign currencies also requires a foreign exchange (forex) account and a lot of dedicated work. This is where currency exchange-traded funds (ETFs) like UUP come into play by giving investors a hassle-free way to invest in currencies.

The objective of UUP is to provide investors with a cost effective and convenient way to track the value of the U.S. dollar relative to a basket of the six major world currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The fund accomplishes this with futures contracts by shorting these six currencies while going long in the U.S. dollar.

UUP is structured as a commodities pool and distributes K-1s, which complicate an investor’s tax return. With $500.28 million in total assets and an average daily trading volume of $29.22 million, UUP is very liquid, making it easy to trade.

UUP has an expense ratio of 0.79% and a distribution yield of 0.10%. The fund rose strongly in late 2017, but recently has dropped due to a weakening dollar. Year to date, the fund is down 1.39%.

UUP’s portfolio of futures contract is 57.60% invested in the euro, 13.60% in the Japanese Yen, 11.90% in the British pound, 9.10% in the Canadian dollar, 4.20% in the Swedish Krona and 3.60% in the Swiss franc.

For advanced investors who believe in the strength of the U.S. dollar, I encourage you to look into the PowerShares DB US Dollar Index Bullish ETF (UUP). It also may provide a useful hedge for experienced investors with positions in international stocks, as well as those who understand the dynamics of the forex markets.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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The Recent Storm of Contract Dysfunction

Word is bond.

That’s the term that keeps coming to mind for me amidst the two most-prominent political stories of the day — the Stormy Daniels affair, and the latest push to restrict gun rights.

Now, the term “word is bond” is urban slang shorthand for the longer phrase “your word is your bond,” meaning that if you give someone your word, then you also are giving them your solemn promise.

In the case of Stormy Daniels, the former adult film actress gave her legal promise (which included the signing of a non-disclosure agreement, or NDA) that she would not reveal the details of her alleged affair with Donald Trump. In exchange for that promise, Daniels would receive the sum of $130,000.

That payment was made, yet Daniels still talked.

Her recent appearance on “60 Minutes” was just the latest violation of the word-is-bond ethic.

Now, I want to go on record here as saying that I think the whole Stormy Daniels/Donald Trump incident is repugnant on many fronts. And I am most definitely not arguing for the propriety of Mr. Trump and his associates in this matter.

I also am not an attorney, so I can’t attest to the relevance of any lack of signature on the agreement by Donald Trump via an alias, or to whether that legally invalidates the contract. These legal intricacies are all extraneous to my ethic.

What I am saying is that when you make an agreement with another party, and then you violate your part of the agreement, you are guilty of what I consider the most serious ethical breach… i.e. the breach of “word is bond.”

In my own business career, I have signed many NDAs having to do with the trade secrets, methods and practices of my employers. And if I were to violate those agreements, I would rightly deserve the social and legal scorn coming to me.

Call me old fashioned, but I believe the principle that word is bond is sacrosanct.

I also believe that when it comes to our rights as Americans, the word-is-bond ethic also applies.

That’s why it’s been disturbing to me to see the latest push for a restriction of our Second Amendment rights.

The March for Our Lives protest last weekend in Washington, D.C., and in dozens of cities around the world, has focused attention on ending the horrific gun violence and mass shooting incidents that afflict our society.

And while I sympathize and agree with the need to make our society safer for all Americans, I also can’t help but think that the focus on restricting gun rights is a violation of the word-is-bond ethic in the United States Constitution.

You see, the Founding Fathers were intent on creating a nation free from government tyranny.

That’s why it is no accident that the ability to speak freely (the First Amendment), as well as the means by which to protect oneself from government-initiated physical force (allowed by the Second Amendment), are bedrock foundations of a tyranny-free state.

I see the Constitution as a kind of word-is-bond agreement between the Founders and future generations of Americans. The word-is-bond agreement ensures and safeguards our liberties better than any other document in world history.

Now, however, there are those who essentially wish to default on that agreement because they think it will make society safer. Indeed, even a former Supreme Court justice thinks we should alter our Constitutional bond, arguing that the Second Amendment is a “relic of the 18th century.”

Of course, part of the brilliance of the Constitution is the provisions in it that allows Americans to alter that agreement provided there is enough consensus.

So, if we want to have that debate, then we should have it.

If we do, I suspect we’ll discover the true wisdom in the concluding text of our Founders’ promise, “…the right of the people to keep and bear Arms, shall not be infringed.”

Word is bond.

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On Entrepreneurial Profit

“Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production.”

— Joseph A. Schumpeter

Profits of the sort made by Jeff Bezos, and every other businessperson, reflect the input that businessperson brings to the table. They are an achievement to be proud of and celebrated. That’s why I hate to see this value vilified in any way by those in political power.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

 

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