Actually, I think this is a Warren Buffett quote but I could not document it. Buffett believes that when you buy something you should be willing to hold it even if the market were to be closed for the next ten years. He subscribes to the idea that day-to-day fluctuation in prices are based on noise and not a considered evaluation of long-term fundamentals.
That was the week that was
It was a perfect example of foolish people, or foolish computer antics, as the market gyrated wildly on presidential tweets about trade negotiations. Last Sunday it was the tweet threatening a more-than-doubling of tariffs and new tariffs on Chinese goods, followed during the week by the president’s statements accusing China of reneging on the deal. The president then went on with a tweet stating that there was “no hurry” getting back to the table (a tweet he subsequently pulled down).
The market responded with a week of volatility, 500 point swings in the Dow Jones Industrial Average. The S&P 500 closed the week down 2.5% from its May 1, all-time-high of 2954. According to Barron’s magazine and its “Up and Down Wall Street” column, “Global stock markets shed an estimated $2 trillion in value from Monday through Thursday, or about 3%, based on the Datastream World index from Refinitiv, The Wall Street Journal reported. Those losses came ahead of the Trump administration’s threatened hike in tariffs to 25% from 10% on $200 billion in goods from China, which took effect a minute after midnight on Friday on the East Coast.”
Friday saw a return to some sanity as the as Chinese, Vice Premier Liu headed back to China with both sides agreeing to continue talking. Both the Dow and the S&P closed higher on he day but still down on the week.
Are our trade issues with China a tempest in a teapot?
What’s the worst case?
A little perspective may be helpful at this point. Our total trade/ exports into China in 2018 was $189 billion [manufactured goods($120 Billion), ag products (10 billion) and services ($59 billion)]. This represents less than 1% of of estimated 2019 US GDP. Total US employment involved in this market is estimated at 911,000 full-time employees.This represents 7/10 of one percent of the 128,000,000 Americans that had full-time employment in 2018.
Worst Case: this trade (balanced or not) all goes away for both countries and trade war morphs into real war … very unlikely. You have to ask before the hot war begins, who’s the biggest loser here? It is not the Chinese. It’s US consumers who will have to pay ever increasing prices (as the tariffs are passed thru) for those Chinese sourced goods they are buying at Walmart, Target and Costco. Effectively the tariffs are a tax increases on US citizens, not China.
Meanwhile, like US farmers, those other sectors of the the economy hurt by the tariffs may be thrown bailout bones (maybe) … another cost borne by US taxpayers.
Worst case — although there were times last week that the market acted like this scenario was imminent (people were throwing away stocks), it is not.
An accord will be reach. Why? It is obvious that it is in China’s best interest; and, In the final analysis our president, a man facing many non-governmental problems, really wants another four years in the White House. He needs to be able to point to a vibrant economy as evidenced in part by a strong stock market. Of course, a real or proclaimed victory on the trade front would be a desirable feather in his cap.
So, don’t be one of those foolish people …
Who panicked at the mere mention of tariffs and don’t be foolish like bond king, Jeffrey Gundlach, who again has called the end of the bull market. Market predicting is a very difficult game. This is something he has done several times in the past few years. Each time he has come a cropper. The link below is from last Tuesday, just as the tariff scare was beginning to bloom.
What a great time to make this call … throwing a little gasoline on the fire … scaring people … helping to fulfill his own prophecy. He did the same thing just before the 2018 Christmas Eve Massacre … “Jeffrey Gundlach — S&P 500 headed to new lows.” Why does CNBC keep featuring this guy? I think we all know the answer …if it bleeds, it leads. On a more cynical note, Gundlach may have been short equities before he made the call. Of course, he should have been. He runs a large hedge fund.
My continued recommendation — Stay the course.
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