Grow Your Portfolio the Intelligent Way

The Truth About Tariffs 

Some falsehoods are too pernicious for honest men to leave unchallenged. 

That’s how I’ve felt of late when observing the utter nonsense surrounding the U.S.-China trade war, and particularly the rhetoric around tariffs and who pays the cost of those tariffs. 

If you listen to President Trump and his chief cheerleader on this issue, Assistant to the President and Director of Trade and Manufacturing Policy Peter Navarro, you would think that the tariffs being imposed by the administration on imported goods coming to the U.S. from China are being levied on the Chinese government. President Trump repeatedly has said via Twitter, in his impromptu remarks on the White House lawn and at his rallies, that China is “paying us Tens of Billions of Dollars, made possible by their monetary devaluations and pumping massive amounts of cash to keep their system going.”

Navarro, whom I’ve met on several occasions and who I actually like personally, goes a little deeper into the explanation of the tariffs, saying: “China bears the burden of the tariffs in the form of lower exports, lower prices for their products, lower profits for their companies…The government of China has borne the burden of those tariffs in the form of lower tax revenues and a lower rate of growth… The governments of China and Mexico will pay for it and the producers in Mexico and China pay for this.”

While this statement is not an outright falsehood, it does ignore the reality that the Trump tariffs are a tax levied on American companies that import goods from China.

Simply stated, import tariffs are levied on those who import the goods. What that means is that American companies that import goods from China are the ones who are paying the tariffs — nobody else. 

Now, one can accurately argue that tariffs on Chinese exports going to the United States has led to a decline in those exports and, as a result, an overall slowing of the Chinese economy. I can agree with that. However, one cannot argue that somehow the Chinese are paying the U.S. Treasury “Tens of Billions of Dollars,” as the president says. That is simply not factually accurate. And, it’s not only untrue, it’s also a deceptive spin on reality.

The truth here is that U.S. companies that want to import the goods on the list that have been targeted for tariffs will have to write a check to Uncle Sam to do so. There are no Chinese entities writing checks.

In fact, the way it works is that all tariffs, duties and levies are collected by Customs and Border Protection agents at 328 ports of entry across the country. And where do the proceeds go? To the United States Treasury. Yes, the same United States Treasury that happily takes your annual federal tax payment (tell me again how this isn’t a tax on Americans?).

Now, I would also argue that those who really bear the burden of the tariffs are the customers of those American companies — i.e. the American consumer — who are likely to pay more for those goods in the form of higher prices. That’s because companies aren’t static entities. If their costs increase, they tend to pass that cost along to customers.

Though the data here are unclear as to how much the tariffs cost the average American family, one recent study found that the 2018 tariffs imposed an annual cost of $419 on the typical household. This cost comprises both the added tax burden faced by consumers and the cost of so-called deadweight, or efficiency loss.

So, to anyone who thinks China is paying the tariffs, please don’t insult our intelligence. Readers of The Deep Woods are neither naïve nor uninformed — and we don’t take kindly to those trying to pull the wool of falsehood over our eyes.  

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ETF Talk: Gain Inverse Exposure to the Market with this ProShares ETF

The ProShares Short S&P500 (SH) provides inverse exposure to the market-cap-weighted index of 500 large- and mid-cap U.S. firms selected by the S&P Index Committee.

SH offers a bet against the S&P 500 and provides the liquidity required to allow investors to do so. The fund, similarly to most leveraged and inverse products, is designed to deliver moves in the opposite direction of its underlying index.

This fund is intended to be held for a relatively short time, and it works best, of course, during periods when the S&P 500 Index is declining. SH is large and liquid — which is vital for a tactical tool. The fee is high, but trading costs are more important, as the fund is not designed to be held for long.

Launched on June 19, 2006, the fund has been around for more than 13 years. It has $2 billion in assets under management, with a 1.63% distribution yield and an average (60-day) spread of 0.04%. Its expense ratio is 0.89%, which means it is generally more expensive to hold in relation to other exchange-traded funds.

Source: www.StockCharts.com 

SH seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the performance of the S&P 500. Due to the compounding of daily returns, performance over periods other than one day likely will differ in amount and possibly direction from the target return for the same period.

These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings frequently. For more on the fund’s risks, please read the prospectus

And remember, you always should conduct your own due diligence in deciding whether this fund fits your individual investing goals and portfolio.

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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Talking Politics, Protests and Unsavory Agents with Guerilla Artist Sabo

Provocative, outspoken, politically unconventional — and even a little “unsavory.” 

Hey, sounds like my kind of guy.

In the new episode of the Way of the Renaissance Man podcast, I speak with the unconventional and inimitable street artist known as “Sabo.”

Sabo is a true rebel. He’s a political activist who uses art to make poignant and often uncomfortable points about political figures on the left. He also pokes fun at cultural figures who he sees as worthy of satirical ire. 

In this discussion, you’ll learn about Sabo’s counter-protester adventures at Antifa rallies, as well as the deep love and passion he has for his work. You’ll also find out how he views creating art as similar to a pianist playing music.

(Photo Credit: Unlock Your Wealth TV)

Plus, find out why Sabo and I have a mutual dislike of vacations, and why we agree that when it comes to life, you can’t be wishy-washy in your views. And the more real you are, the more respect you earn.

I had a great time conversing with Sabo, and I suspect you’ll have a great time listening to this most interesting “unsavory agent.” 

To listen to the podcast, simply click here right now

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A Fond Farewell to A Libertarian Luminary 

Mention the name “Koch” in American political circles and you’ll get reactions ranging from revulsion to loathing and from gratitude to celebration. Not surprisingly, news of the death of David Koch at age 79 elicited a wave of responses from both the political left and the political right.

Just reading some of the editorial headlines on the billionaire businessman, philanthropist and political activist is enough to demonstrate that he became a polarizing figure. For example, the website Common Dreams ran the headline, “David Koch’s Monstrous Legacy.” In the United Kingdom, The Guardian’s headline was, “Death and destruction: This is David Koch’s Sad Legacy.”

Then there were the comments by comedian Bill Maher (who I must admit I am a fan of when it comes to his humor) on his TV show “Real Time.” Maher outright celebrated the death of a prominent conservative in his opening monologue, crassly saying of Koch, “F*** him,” and “I’m glad he’s dead.”

Then there were more sober opinions, ones that also celebrated the life of a man, who, along with his brother, boldly put his money where his ideas were and tried to shape the world in his image.

David Koch (Source: Gage Skidmore/Wikipedia)

Kentucky Senator Rand Paul, who also happens to be this writer’s favorite politician, wrote the following Twitter post in reaction to David Koch’s death:

“RIP to a man who lived a life of liberty, peace and philanthropy. Great blessings bring great responsibility, and David Koch lived that way. His many contributions will have lasting impact on our country. My thoughts are with his family today.”

Now, it should come as no surprise that I was a fan of the Koch brothers. First of all, they grew their family’s business, Koch Industries, together into one of the most successful and profitable industrial enterprises in the world. For that alone, they deserve reverence.

Yet what got the ire of the political left is the Koch brothers’ support and funding for free-market political causes and for political candidates with a libertarian bent. The Kochs were not Republicans. Rather, they were lifelong libertarians whose work and charitable donations reflected the values they held. These values included a love of free enterprise and the need to restrict and limit the power of government.

In a book I highly recommend, Radicals for Capitalism by Brian Doherty, Koch said in an interview that his father taught him “big government was bad, and impositions of government controls on our lives and our economic fortunes was not good.”

The Koch brothers used that premise to animate their activism, which included David Koch winning the nomination for vice president on the Libertarian Party ticket in the 1980 presidential election, as well as his support of the Reason Foundation, which publishes one of my favorite publications, Reason magazine.

And largely because of their support for freedom, markets and limited government, the Koch brothers became a lightning rod for the left and virtual paragons of so-called evil, greedy businessmen who wanted to destroy the climate, make the world safe for the top 1% and gobble up all of the world’s wealth for themselves.

Hey, every cause must have its villains. To the left, there were no better villains than the Koch brothers.

Of course, what the Koch brothers wanted most was to make the world a place where government’s role was restricted to its original intent — a government that existed to preserve and protect individual rights, and not a government that could pell-mell violate individual rights in the name of the “greater good.”

Because of David Koch’s focus on that noble ideal, I invite you to join me in bidding a fond farewell to this libertarian luminary.

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The Virtue of Getting Mad 

“There’s only one way to become a hitter. Go up to the plate and get mad. Get mad at yourself and mad at the pitcher.”

— Ted Williams 

When I was a kid, my father always told me that his favorite athlete was also the greatest hitter of all time, Boston Red Sox legend Ted Williams. In this quote, Williams lets us in on one of his secrets to success — he used to get mad! You see, to do anything great in life, you have to be animated with the kind of passion and desire to achieve that usually comes from one of two sources — deep love or deep anger.

Here, the anger is a sense that you won’t rest until you’ve conquered your opponents, vanquished your shortcomings and bested the self-doubt that rages within us all. So, take it from the last man to ever finish the year with a batting average over .400. And if you want to be a good hitter in life, try getting a little mad. 

Wisdom about money, investing and life can be found anywhere. If you have a good quote that 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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