Displaying items by tag: trade war

Tuesday, 24 July 2018 09:51

The Big Quirk in Small Caps

(New York)

Investors really focused on small caps may have noticed, but others wouldn’t have. There is an odd quirk occurring in the Russell 2000 this year. A third of the index doesn’t have any profits, yet those companies are rallying 50% faster than the rest of the index. Money losing small cap stocks are up 14.5% this year versus 9.2% in profitable ones. The big question is why. Bloomberg offers no clear answers, but does say that ultra low rates have historically boosted the proportion of money losing companies.


FINSUM: Passive investing is surely helping, as all these money losing firms are still seeing their shares bought purely because of index replication. A Russell 2000 minus money losers ETF would be interesting.

Published in Eq: Large Cap

(Washington)

It looks like the EU is going to pullout all the stops to try to avoid a trade war with the US. EU commissioner head Juncker is going to meet in Washington this week with President Trump to offer some new avenues for discussion as a way to avoid a broad tariff package. Trump is threatening a $50 bn tariff package on the EU, which he says has taken advantage of the US in trade. Europe is particularly worried for their car exports to the US, which are very vulnerable to Trump’s potential tariffs.


FINSUM: We have a hard time imagining Juncker is going to say anything to dissuade Trump, but maybe the EU has something sweet to offer.

Published in Politics
Friday, 20 July 2018 10:03

Trump Readies $500 bn of Tariffs

(Washington)

Anyone hoping the current trade war might have stalled will be sorely mistaken today. While Trump says he plans to to impose an additional $200 bn of tariffs on China in September, he has just said he is ready to go to a full $500 bn of tariffs on Chinese imports. When asked if he thought his plans would cause the stock markets to drop, Trump responded “Well, if it does, it does. Look, I'm not doing this for politics. I'm doing this to do this right thing for our country”.


FINSUM: We think the US does currently get a raw deal in a lot of foreign trade, especially with China. However, the manner in which this “negotiation” is proceeding does seem to be unnecessarily disruptive.

Published in Politics

(New York)

There has been a lot of speculation lately about the extent to which the current growing trade war may affect the economy and markets. Some expect a benign effect on both. Well, Bloomberg has run a piece arguing that the trade war may lead to a Chinese debt crisis, which could in turn lead to a global financial crisis. The impact of the tariffs on the Chinese economy could be serious. China is already seeing a very high level of defaults, and with the extra burden of tariffs coupled with a weaker Yuan, it could create credit chaos for Beijing. Bloomberg put it this way, saying “That the massive burden of debt will drag the economy into recession is as obvious as the empty towers that rise on every landscape … But on any metric, the amount of new lending each year grows faster than the economy, and the interest newly owed exceeds the incremental rise in GDP. In other words, the whole economy is a Ponzi scheme”.


FINSUM: It is hard to imagine a more forceful comment than that last one from Bloomberg. We don’t know if we would go so far, but given how indebted the Chinese economy is, and their reliance on exports, tariffs could spark a meltdown that then spreads overseas.

Published in Macro
Thursday, 19 July 2018 08:25

Will Stocks Be Downed by a Trade War?

(New York)

A lot of investors may be asking themselves whether stocks will be directly impacted by a trade war. In the last several trading days, the market seems to have shrugged off the increasing trade tensions. However, JP Morgan is warning that the burgeoning trade war may wreak havoc on the market. The rising tariffs now occurring globally follow 50 years of increasing free trade, so there is little modern precedent for what is occurring.


FINSUM: In our view, the market does not have a good feel for pricing the risk of a trade war because it has been so long since investors have seen anything like it. Beware.

Published in Eq: Large Cap
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