Grow Your Portfolio the Intelligent Way

Whiskey, Tailpipes and Tribalism: Singing the ‘Trade War Blues’

Since early March, equity markets have been singing a faint, yet increasingly loud, song that is giving the bulls reason to pause.

That song should probably be titled “Trade War Blues,” and the latest verse includes whiskey, tailpipes and a whole lot of economic tribalism. Last week, stocks traded sharply lower in a completely rational reaction to a development I’ve been warning readers about for months.

That warning is all about tariffs and a potential trade war, and the heated-up rhetoric from the Trump administration, China and Europe. That talk of tariffs caused the Dow Jones Industrial Average to suffer its biggest one-week decline since March.

Not coincidentally, March also is when the original “Trade War Blues” jam started to be heard on the corner of Wall and Broad in Manhattan.

Now, from a purely global and domestic economic growth standpoint, tariffs are never a positive. Markets know this and last week, and again on Monday, it has looked like markets are really starting to take the prospects of a profit-killing trade war seriously.

The way I see it, trade wars are a misguided form of tribalism in economics that are, ironically, bad for all tribes. Tariffs only serve to punish a country’s citizens via increased taxation on goods and/or services, and via higher prices of goods and services.

And though there are some companies/individuals who benefit from specific tariffs and/or trade decisions, they do so at the expense of other companies, other industries and nearly all consumers. And, many, many more individuals are harmed via higher product costs, higher taxes, more government and less economic freedom.

Of course, every good blues song needs a lyric or two about a favorite way to drown your sorrows, and that way usually involves whiskey. In the “Trade War Blues,” we’re drinking the ultimate Tennessee whiskey, Jack Daniel’s.

This week, Brown-Forman Corp. (BF-B), makers of the iconic libation, announced it would be raising prices by 10% on its flagship brand that is sold in many European countries in order to combat the 25% tariffs imposed by the European Union (EU) on U.S. bourbon.

Oh, and why did the EU impose those tariffs? It did so to combat the original tariffs placed on steel and aluminum imports to the United States by the Trump administration.

Then we have another favorite of the blues song genre, motorcycles.

I’m referring here to another American icon, Harley-Davidson (HOG). On Monday, the Wisconsin-based motorcycle maker announced plans to move some of its production overseas to avoid the EU’s retaliatory tariffs.

According to Harley-Davidson, the EU tariffs on the company’s motorcycles increased to 31% from 6% and will raise the cost of the average motorcycle to the EU from the United States by about $2,200. The company also announced it expects the tariffs to cost about $30 million to $45 million for the rest of 2018 and could cost $90 million to $100 million on an annual basis.

Here again, we have another verse in the “Trade War Blues” that means damage to an iconic American company’s bottom line, as well as fewer jobs here in the United States.

This is the kind of negative fallout from the economic tribalism of tariffs and a trade war. And, you know it’s tribal based on the reaction from the head of the tribe… President Trump himself.

In a series of Twitter (TWTR) posts reacting to the Harley-Davidson announcement, the president essentially scolded the company’s management for “surrendering” and “quitting” with its decision to do what’s in its financial best interest.

Check out the disturbingly granular tweet, which essentially threatens the company for making a business decision based on financial merits, as its management sees it:

I consider this a disturbing form of tribalism, because the threat is designed to make Harley-Davidson act in what the president thinks is in the best interest of the country.

Well, Mr. President, Harley-Davidson and its shareholders demand that the company act in its best fiduciary interest, not in the interest of the tribe — even if that tribe is the America you would like to make great again.

All this said, I am a fan of much of what the president has done for the economy, for the business community and for individual taxpayers. The tax bill passed late last year was outstanding, and companies now can breathe easier with a lower corporate tax rate. Moreover, the reduction of regulation has been a much-needed and much-appreciated development that wouldn’t have come to pass without President Trump leading the charge. For that, the president deserves to be commended without equivocation.

Unfortunately, I think Mr. Trump stands to undo much of the progress from tax cuts and deregulation with the heightened tariff and trade war talk. Still, the saving grace here, at least from a market perspective, is that most of the tariff and trade war talk has, thus far, been just that — talk.

However, if the president follows through by moving ahead and imposing more tariffs (the latest idea being floated is another $400 billion on Chinese goods at a 10% rate, and another 20% tariff on all European auto imports), and more restrictions on foreign investment in technology (a policy he threatened on Monday), the “Trade War Blues” won’t just be sung on Wall Street — it will be belted out loud the world over.

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Update on Fast Money Summit at FreedomFest

We just received a historic video from investment guru Mark Mobius, longtime manager of the Templeton Emerging Markets Fund, which we will be showing exclusively at our Fast Money Summit at FreedomFest in two weeks, July 11-14, at the Paris Resort, Las Vegas.

Based on his long-time experience investing in emerging markets (his fund is ranked the #1 foreign fund over a 30-year period), he will reveal his three most important lessons of investing.

We just watched it and it’s a must-see! After we show the Mark Mobius video (recorded in London), Jim Rogers will give us his own commentary on investing in Asia and around the world.

Nearly 1,300 people have now signed up for FreedomFest, and many will want to attend our Fast Money Summit in the Vendome A room. The excitement is building. We are getting dozens of sign-ups every day. Steve Forbes and John Mackey, co-ambassadors, will be our final speakers at the Summit on Saturday, July 14, followed by a private reception. I can’t wait.

The entire agenda is posted online! We have an incredible lineup of big-name speakers and experts, panels and debates. Go to https://www.freedomfest.com/agenda-3/. There is nothing like it in any conference anywhere.

To register, go to https://www.freedomfest.com/register-now/, or call toll-free 1-855-850-3733, ext. 202. You’ll be glad you did.

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ETF Talk: Offering Cost-Effective Solutions to International Investing

Many investors use exchange-traded funds (ETFs) to diversify their holdings and reduce portfolio risk. However, another value to ETFs that funds like the Fidelity International Value ETF (FIVA) tap is to trade international securities without paying extra to a broker.

Domestic and international markets can act like a seesaw in relation to one another. When one is showing relative strength, investors tend to pour into that market and ignore the other one, only to do the opposite if the uptrend swings the other way. Investors who want to get in on solid international equities without having to buy specific companies, including some that are probably unfamiliar to the average investor, will find ETFs the most sensible way to invest globally in a cost-effective manner.

The Fidelity International Value ETF looks for international securities that historically are undervalued and have the potential to rise in price when the market comes around to those types of investments. In general, this investment strategy typically means that FIVA will have a significantly lower amount invested in growth-oriented technology stocks than you normally would find in an ETF with a broader scope.

This fund specifically focuses on large- and mid-cap companies in developed overseas markets. With this aim, it shouldn’t be a big surprise that the country most represented among FIVA’s holdings is Japan, as this country’s market has been undervalued for many years compared to international averages.

FIVA came into existence on Jan. 16 of this year and has not performed well since, losing more than 12%. However, this decline largely can be attributed to the overall market environment of the last six months, where a weakening international bull market has been competing against a rising U.S. dollar and strong domestic economy.

Considering the low current price, FIVA’s dividend payouts should amount to a 3.84% annual yield. With only $14 million in assets, the fund is fairly small, but investors who are interested in it may find the share-price dip to offer a good entry point.

Chart courtesy of Stockcharts.com

The top holdings of FIVA include Royal Dutch Shell Plc B shares (RDSB), 2.22%; Nestle SA (NESN), 1.91%; Babcock International Group Plc (BAB), 1.87%; Toyota Motor Corp., 1.69%; and Nippon Telegraph & Phone Corp., 1.54%. The top 10 holdings are allocated about 16% of total assets.

The most prominent sectors in this fund’s holdings are financial services, consumer cyclical, industrials and consumer defensive, with investments primarily in Japan and European markets.

For investors looking for a way to combine value investment strategies and developed international markets, the Fidelity International Value ETF (FIVA) is a simple and low-cost way to accomplish that goal.

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 Best TV Commercial Ever  

I don’t know about you, but I don’t usually pay particularly close attention to TV commercials. As a good capitalist, I realize that commercials are the fiscal lifeblood of the broadcasting business. Yet, it’s just a fact that it’s impossible to take in all the advertising messages we are bombarded with daily.

There is one commercial I saw recently that grabbed my attention, and I think it might just be the best TV commercial ever.

The commercial I’m enamored with here is from enterprise software firm SAP SE (SAP), and it stars the captivating actor Clive Owen. Yet it’s not Owen that makes this commercial so great. What makes the SAP commercial so excellent is its philosophical content, and particularly its message that business is the solution to virtually all the world’s problems.

“The best-run businesses can make the world run better,” says the ad, “Because solving big problems is what business does best.”

Boom! It’s that message that resonates so deeply with me, as a free-market purist and an advocate of laissez-faire capitalism. It’s also a message that slaps aside the notion that government is the solution to the biggest problems in society.

Indeed, the SAP ad starts out by mentioning many of those big, global problems, including: Overproducing (i.e. pollution), overcrowding, overheating (i.e. global warming), an aging infrastructure and workplace bias.

The genius of this commercial is that it asks, “Who’s going to fix all of this? An actor? Probably not.”

Then SAP correctly identifies what truly is the only real solution to nearly every problem of scarcity and unintended consequences the world grapples with, saying: “But you know who can solve it? Business.”

Now, aside from correctly identifying the only real solution to human problems, i.e. the ingenuity of humans focused on a goal and driven by the profit motive, what makes this commercial even more philosophically powerful is the insinuation that this kind of activity is a moral virtue.

“And doing good is just good business.”

Finally, the SAP commercial tells us that whether it’s growing more food with less water, or making “healthcare, more healthy,” or taking on other social issues such as the wage gap, the opportunity gap and the achievement gap, “Together, we can tackle every elephant in the room.”

I couldn’t agree with this commercial any stronger, and I applaud SAP for coming out with this unabashed defense of what they do, what business in general does and what capitalism can do for humanity.

And, as the closing lines go… “Because whatever the problem is, business can help. And I know who can help them do it… SAP.”

Bravo, SAP. You’ve managed to make a commercial that not only positions your company as one that can aid in resolving the world’s biggest issues, you’ve also succeeded in making this free-market warrior smile with philosophic delight.

If you want to learn how I apply my laissez-faire economic mindset to help my newsletter subscribers win big in the markets, then I invite you to check out my Successful InvestingIntelligence Report and Fast Money Alert advisory services, today.

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Liberty and Security for All

“He that would make his own liberty secure, must guard even his enemy from oppression.”

— Thomas Paine

Sound philosophic principles apply to every person. Founding Father Thomas Paine knew this, and that’s why he made the point here that it is important to preserve liberty for everyone. To shed the destructive vagaries of tribalism, we need to understand and apply this equality of rights principle. If we don’t, we are doomed.

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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