Reaction to the tariff moves could be a red herring

The world markets are still getting their knickers in a knot about the implications of a 25% tariff on steel in to the US, and aluminium tariffs of 10%. Anyone who studies economics is taught that tariffs are inefficient, so we get that, but efficiency has many different measures. Are we looking from a national or a global perspective? Are we thinking about global corporations or domestic producers? If you are global, you will relocate to the country offering the best deal. If you are only a domestic producer you don’t have the same flexibility so you have to take any changes on the chin, be they good or bad.

Whenever any government moves the goal posts there will be winners and losers. As investors we should be determining who falls into which camp, and move to the winners. Wholesale selling of markets is not smart.

For the real reason why the Dow will go down rather than up, look to the interest rate predictions. As we said last week, look for signs of inflation coming back, and then decide whether the Fed will make a pre-emptive strike to pinch out inflation early, or whether it will be weak in the face of pressure not to do anything that brings down the shutters on the bull market. History shows us that the monetary authorities usually do too little, too late. Market volatility will oscillate around the competing opinions and expectations. So, markets have failed to inspire over recent days even though things look fine on most fronts.

 

 WeeklyComm10March2018.pdf