The Crazy Thing About the Trade War
This is gonna sound crazy, especially coming from me. But one thing I've learned in my 20+ years in this biz is that you never direct your first question at the market itself...
“Has this market gone crazy?”
“Why are stocks rallying when the news is terrible?”
“Stocks should be rallying, the news is great!”
First of all, who are you talking to? It's the stock market. Second, even if it could answer you, would you be able to make sense of what it had to say? I mean, after all, you're the one talking to a bunch of words and numbers on a screen...
But here's the thing about the stock market: If you ask it for answers, it will tell you exactly what you want to hear. If you're bearish, it will be obvious by your question, and you will see nothing but bad news and dire predictions.
And if you're bullish, every stock will look like the next Amazon.
I became a much better investor when I stopped asking questions of the stock market. Because it meant I was finally asking questions of the only one whose investment opinion really matters: me.
“What am I missing here?”
“Do I have enough information?”
“Is that a reasonable expectation?”
“Can I have fries with that?”
You might be surprised by how much you can learn when you start from an assumption that you don't know enough.
Of course, having all the information is not a worthy goal. Goals that cannot be met simply torment us and keep us from taking positive action.
The main point here is that nothing you do has any bearing on what the stock market will do whatsoever. It's about you. How you react. What stocks you buy. Where you look for information. What you do with that information.
But that's not the crazy part.
Here's the Crazy Part
I got thinking about all this early Tuesday, when index futures were pointing higher just a day after the Dow dropped nearly 700 points as the U.S.–China trade talks took a turn for the worst.
I wrote a pretty bearish article about this whole situation on Monday. And I found myself starting to ask, “Has the stock market gone crazy?”
My brain has been rigorously trained to alert me whenever it starts to ask the stock market a question, just to make sure the proper approvals have been granted. As usual, my brain was trying to pull a fast one, so I quickly suspended its network credentials to prevent it from hitting the “send” button for that stupid question.
Then I sent the question that really matters: What am I missing?
I spend about two hours every morning just reading. This morning I found my answer in China's tariff retaliation list.
The first thing to note is that while the U.S. raised the rate on $200 billion worth of Chinese stuff, China's retaliation only targeted $60 billion of U.S. stuff. That is not exactly tit for tat. Interesting...
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Then there are actual items that China will target. Food, Consumer Goods, Building Materials, Transportation, Electronics, and Natural Resources and Chemicals.
As tempting as it might be to eat up my word count by providing several examples in each category, I'm going to keep this part brief.
Food is a big one. Probably the biggest. This one really hurts farmers. Still, Trump has declared $15 billion in aid to farmers. Question: If a deal gets done and prices recover, do farmers have to give the money back? Doubt it — could be a big win-win for a big voting bloc.
For building materials, we've got building stone and bricks, wall covering (is that wallpaper?), and small tools. OK, so if anybody is shipping freaking bricks halfway around the world, I wanna know about it right now. Because your business license is officially revoked. Small tools, that could hurt.
For consumer goods, we've got hats, umbrellas, sleeping bags (?), musical instruments, and footwear, including sport shoes — that's Nike, potentially big. I never thought about whether the Chinese liked camping.
Under transportation, there's canoes, motorboats, and railroad stuff. Seems like China has the bases covered with railroad stuff (a Chinese company offered to finance high-speed rail here a couple years ago). And is somebody putting boats on a boat to China? Huh...
Electronics, there's coffee makers (does a French press get an exemption?), microwave and electric ovens, and space heaters — which I thought were all made in South Korea. Telecom equipment: That's gotta be a Huawei joke. The U.S. is home to exactly none of the big telecom equipment companies.
Finally, natural resources and chemicals, where again it seems someone is sending granite and marble rocks to China. WTF?? Diamonds, fertilizer (which is potentially big considering the lack of arable land in China), chemicals like iodine and chlorine, and liquefied natural gas (LNG).
LNG sounds big but it's not. Because there is no shortage of customers for U.S. LNG. That market is booked solid for years to come.
Oh, that was fun.
Look at what's not mentioned. Airplanes (Boeing). iPhones (Apple). Coffee (Starbucks). Movies (Disney, which is wildly popular in China).
OK, OK, the Crazy Part
So the U.S. has hit with tariffs on $200 billion of Chinese stuff and is considering tariffs on another $300 billion of Chinese stuff. Meanwhile, China's list has gotten to $60 billion, and it had to go after the dumb bastards shipping rocks, bricks, and granite to get there. I mean, really, we should be paying China to end this business model. Oh, wait...
Really, I'm getting to the crazy point.
So far, I've been pretty adamant that I support the trade war as a means to combat China's unfair business practices. But I've also said let's not pretend that anyone really "wins" in the near term.
But I'm looking at that list, and I'm starting to wonder: Maybe the U.S. actually does win a trade war with China?
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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