Market Strategy Radar Screen Weekly June 04, 2018

Hit Me With Your Best Shot

After a choppy week, better than expected economic news stateside gave the market a bid

Last week investors got whipsawed as volatility spiked (albeit to a relatively low level compared with earlier this year in February) as markets reacted to a populist victory in a key election in Italy and increased prospects flashed across investors’ radar screens that a trade skirmish between the US and China could result in a trade war should rhetoric from both sides prevail over substance and reason. Setbacks empowered by profound differences in positions in negotiations among NAFTA’s trading partners didn’t help investor sentiment either.

As investors have seen happen so many times since the economic and market recovery began in March of 2009, a packet of positive surprises in the form of economic data crossed the proverbial transom highlighting the improving economic expansion taking place in the US. This provided a hefty offset to the worries du jour that had roiled the markets just the day before.

Once again we were reminded that “there’s never an ‘all clear’ signal for the markets” as well as of the primordial adage “it ain’t over ‘til it’s over.”

As we went to press yesterday evening Asian markets were mixed but with a bias to the upside suggesting that investors may give (trade) peace a chance as negotiations continue even as tariff deadlines bear down on the calendar.

In the week ahead, market participants will likely focus considerable attention to the interactions of the members of G7 (the US, Canada, the United Kingdom, Germany, France, Italy and Japan) representatives of which will meet in Quebec this week. Both the European Union and Canada are threatening retaliatory measures against the US if the administration fails to reverse new steel and aluminum tariffs.

As disconcerting as the current process of trade negotiations may be on any given day we believe it is important for investors to consider that what has thus far come to pass in terms of US trade policy since November 2016 appears dramatically different to what trading partners of the US have grown to expect in the seventyplus years that have followed the end of World War II.

From that time until just recently, US trade negotiations may have reflected the tradition of the Marshall Plan too long after the passage of time and advances in trade reflecting globalization and technology had changed the competitive landscape. The highly noble tradition of the Marshall Plan served the purpose of combating communism and despots around the world.

However, in hindsight the Marshall Plan may have promoted global trade via agreements that caused the US to have given away much more than it received when the impact of the process of globalization and trade on industries, labor and regional economies in the US are taken into account.

Easy and affordable access to technology has lowered barriers of entry to competition in a myriad of industries from mom and pop businesses to long established multi- national corporations. Members of the boomer generation are familiar with the damage sustained by the US auto industry, the textile industry, the garment center, the furniture industry and many other businesses in the past 20 years.

Today, as a result of the ubiquitous nature of technology and the near instantaneous flow of information, we believe that that no country is exempt from being placed at a disadvantage when dealing with its trading partners via the tenets of trade pacts that are likely anachronisms in the present day.

For all the noise surrounding the trade negotiations that are taking place at this time in world history it may be none too soon for them to take place.

In our experience we are always reminded that with change comes disruption, discomfort and risk but not without significant opportunity.

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