Tariffs -- Phase 2
The financial markets have digested the shocking news of a month ago -- the unexpectedly large size and dimensions of the tariffs. While deals are promised, and may still be forthcoming, there is already an additional 10% tariff applied to imports. And the China tariffs are already taking a toll.
The stock and bond markets have rebounded, looking past the potential impact on corporate earnings and consumer spending. But the real economic impact of tariffs has yet to materialize.
Reports show Chinese factories slowing, and container ships at Chinese ports loading 30% less goods. While many American retailers stocked up in advance of tariffs, those supplies will soon run out. If they are replaced with new goods, the prices will be higher. Or consumers may face empty shelves.
Even if negotiations lower the tariffs, the impact will be felt in coming months -- and in the upcoming back-to-school and then holiday shopping seasons.
Tariff-related decisions are already being made by small businesses. And the uncertainty is hitting farmers, who export much of their soybeans and grain. They must guess how much to plant -- just in case the Chinese retaliate by purchasing elsewhere on global markets.
It will take a while to resolve all the shocks hitting the economy. But that is the economic impact. The uncertainty is also having an emotional impact on consumer confidence and faith in our system. So I want to share my most recent column, in hopes that it will keep your financial planning and your state of mind in balance and in perspective.
********************************************
The Fine Line
There’s a fine line between fear and optimism, between financial fact and emotion. The whipsaw headlines these days make it even more difficult to plan for your future and protect your finances.
It’s not your fault that your emotions may overwhelm your good judgment. No matter what your political persuasion, the sudden policy reversals are bound to impact market prices and your portfolio.
Suddenly, a new generation is learning that the stock market does not always go up, and that the downside is always faster and more fearsome than the bull market rallies. But the lessons of history tell us that the trend for America has always been upward – even through times of war and recession and inflation and political change.
If you can’t believe in the future of this country, through all its ups and downs, then it doesn’t matter what stock or bond you buy. Sadly, I’m hearing from too many people who have reached that stage of confusion. They are – understandably – ruled by fear of the future.
What’s the Worst That Could Happen?
The U.S. dollar is the centerpiece of world financial transactions. For example, most global trade is priced in dollars, and oil is priced globally in dollars. The United States bond market has, since World War I,I been viewed as the safest place to put your money. In times of crisis, global funds flow into purchases of Treasury bills, notes and bonds seeking safety.
Recently, that safety has been called into question. Instead of money flowing into the United States, it started flowing out. Even former Fed Chair and Treasury Secretary Janet Yellen called that a troubling reversal.
Instead of buying United States debt, it appeared that some central banks and global funds would start selling. That caused U.S. interest rates to move higher, in order to attract buyers of our debt. And the U.S. dollar, which is typically the “strongest” most sought-after currency in the world, declined against the Euro, and other currencies. And against gold.
The most troubling consequence of our on-again, off-again policies is not domestic inflation or recession. It is the possibility that the United States will no longer be the trusted center of the global financial system.
After all, England once held that role, with the pound sterling as the center of global trade. And centuries ago Spain, with its riches from the “new world,” was the center of trade and finance. It is not ordained that a currency and a nation will hold its place at the center of commerce.
Fortunately, the administration reversed course after this warning from the bond market. Now it is a matter of seeing what deals are reached, what policies prevail.
Then What?
We live in a complex economy. Too many people are asking me if they should take their money out of the bank, hide it at home, or buy gold. Or have Bitcoin in a digital account. If our system breaks down, then paper money, digital currency, or even gold coins will give you little solace if there’s no medicine to be had, and bread disappears off the shelves. Just ask countries like Venezuela, or Cuba, or the old USSR.
The consequences are unthinkable. That’s why it’s time to calmly evaluate your finances. And why it’s time to hold our leaders of both parties to account. Make your voice heard – and make your money work sensibly for yourself.
History says that it’s never wise to bet against America. Prudence says it’s never wise to try to find the bottom of the market. But a long-term program of investing has always paid off in America.
There has never been a 20-year period – going back 100 years – when you would have lost money in a diversified portfolio of large-company stocks, like the S&P 500 stock index, with dividends invested. Even adjusted for inflation.
Why bet against the trend?
Face up to Facts
Your personal finances deserve your honest and careful attention. If the market has a long period of decline, you’ll need to figure out how much money you need to live on, even without stock market profits.
The decade of the 1970s was one such period, with the Dow falling below 600 in 1973, and still under 800 by 1982. It was a tough decade to be an investor. People gave up on the stock market, just before the greatest bull run in history, which has taken us up to Dow 40,000 – although with some scary declines in 1987, 2000, and 2007.
So set some money aside in bank CDs, money market funds, and T-bills – all of which are “chicken money” havens, where you don’t get rich – but you don’t get poor! But don’t lose faith in the future. That has never been a winning bet. And that’s The Savage Truth.
*******************************
A special Note:
Last week, I did an hour-long online webinar presented by the Chicago Area Public Libraries. I talked about the economy and answered participants questions on topics ranging from Social Security to Investments -- and much more.
If you have time and want a more in-depth look at my latest commentary, click on THIS LINK.
|
No comments:
Post a Comment