Trump Grows International Trade War

What the hell…?

Today, we scratch our heads…along with millions of others all over the globe.

Is America’s president crazy like a fox? Or something else…?

But we’ll come back to that in a minute…

Back into whack

First, Спасибо.

We only know one word in Russian…and that’s it. And it seems like the right one. It means ‘thank you.’

Chris Mayer — our old friend, investment guru, and now manager of Woodlock House Family Capital — helps us with an investment strategy based on ‘reversion to the mean.’ In other words, you buy where prices are out of whack. You make money when they go back into whack.

Most people want to be in the best-performing markets; we look for the worst ones. Those are the ones that go back into whack and make you money.

Companies go broke and disappear. Just as humans spend more time dead than alive, all businesses are doomed to fail. So when you see a company whose stock has gone way down, you better check its pulse before you buy the stock.

But countries take much longer to disappear. And, over time, a dollar earned by a Finnish company ought to be worth about as much as a dollar earned by one in Sri Lanka.

So, if today you can buy the dollar of earnings from a Finnish company for $10…and the dollar of earnings from the Sri Lankan company for $20…it’s a fair bet that the price action will eventually bring the two closer together rather than further apart.

Spasibo!

Take two energy companies. If you want to buy $1 of annual earnings from Exxon, you’ll pay about $20. But the cost for a dollar’s worth of earnings at the Russian equivalent, Gazprom, is only about 3.5 bucks. Which is the better deal?

We don’t know. And you’d probably be well advised to look more closely to find out how the two got so distant in the first place.

Not wanting to do that kind of tedious research…and not having much confidence in our own guesswork…we simplify: We just buy the world’s cheapest stock markets.

Last January, for example, Chris recommended five of the world’s worst-performing markets: Russia, Turkey, Germany, Greece, and South Africa.

We don’t have any idea what is going on in these countries. Nor have we any opinion about the state of the economy or the stock market of each.

But our Russian ETF rose 27% this year. Spasibo! Greece was an even bigger winner, with stocks up 34%. But we don’t know how to say ‘thank you’ in Greek.

On the other hand, Germany and South Africa get no thanks. The former gained 9%. The latter canceled it out with a 10% loss.

And Turkey was…well…a turkey. It lost 21%.

Overall, not bad. Next month, Chris will recommend another five terrible markets. We’ll let you know what they are in January.

Ardent admirers of the trade war

So, let’s turn back to our subject du jour. We like a joke as much as anyone. And we appreciate satire and ridicule more than most.

As for Mr. Trump’s natural gift for it, we are an ardent admirer. But as a moqueur, our president is in a class by himself…or else he’s just a complete moron.

You decide. First, his trade war with the Chinese is turning out to be as eternal and as pointless as the War on Terror. Here’s the latest, from the horse’s mouth:

I have no deadline, no. In some ways, I think I think it’s better to wait until after the election with China. In some ways, I like the idea of waiting until after the election for the China deal. But they want to make a deal now, and we’ll see whether or not the deal’s going to be right; it’s got to be right.

Not content to have clipped the U.S. consumer for billions in import taxes and higher prices with his spat with the Chinese, Trump took on the Brazilians and the Argentines on Monday, on the grounds that their currencies had gone down. He tweeted:

Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries.

With 50% inflation, it would have been impossible for the gauchos to prevent the peso from falling. As for the Brazilian real, it goes up and down. And if it is going down against the dollar now, it is as much the fault of the U.S. as Brazil.

Big joke

Currencies go up and down all the time…often against the desires of the governments that issue them. Why this should trigger a retaliatory tax on American importers of steel and aluminum is in the realm of parody…not policy.

Then, as if to extend the joke, yesterday Mr. Trump decided to aim his trade war artillery at the French, specifically putting taxes on 65 French product categories — including wine, cheese, handbags, beauty products, and tableware.

What is it about camembert that threatens U.S. national security? What did the French do to incur the wrath of POTUS? They imposed a 3% tax on online sales, which some big American retailers doing business in France — such as Amazon and Expedia — will have to pay.

In other words, according to The Donald, France may not tax companies doing business in France…not without his say-so. As he put it in a news conference yesterday:

They are American companies, I don’t want France taxing American companies.

I’m not going to let people take advantage of American companies. If anyone is going to take advantage of American companies, it’s going to be us.

Trade war bazooka

Let’s see, we’ve been doing business in France for 25 years. Every year, we pay our taxes…just like every other business doing business there.

And not just in France. We have operations in 11 foreign countries. Not one of them has ever exempted us from local taxes because we are Americans. And never once did it occur to us that we should be taken advantage of exclusively by the U.S. government.

Here at the Diary, we do not give advice. But this seems like a special case…

If Mr. Trump has any friends left in Washington, they should take away his trade war bazooka before he hurts himself.

Спасибо.

Regards,

Bill Bonner

Daily Wealth

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.


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