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Global Trade

CAMS Weekly View from the Corner – Week ending 4/6/2018

April 9, 2018

For several weeks now global trade has made headlines seemingly on a daily basis.  Trade tariffs with a follow-on concern of trade wars have become a consistent backdrop of the political, economic and market landscape.

Specific to markets, the concern of tariffs ultimately leading to a trade war has added immense volatility.

If you read these Weekly Views consistently you are fully aware of our mantra of an absolute “must-have” of solid economic growth to support our historically highly valued markets.  A notable hit on economic growth will set markets lower and most likely, much lower.

Being markets are forward looking said tariffs become a concern of leading to trade wars because that can be the logical follow-on.  This does not mean trade wars will be the end result but collective market participants are already edgy in light of the level of market valuations.

For market participants this elicits memories of the Smoot-Hawley Tariff Act back in 1930 which only intensified the challenges economically in the Great Depression.


The above picture is a multi-decade view of the United States’ Net Exports of Goods and Services.  Realizing few people see historical data such as this we thought it timely to share a long-term view.  It is certainly a less than ideal view, to put it mildly, when looked at through a multi-decade lens.

As displayed above we can see our trade deficit dates back to the mid-1980’s.  The deficit has intensified since the late 1990’s.

Interestingly, we have reached a point (in the last couple of decades) whereby we cannot produce domestically to a level that meets our own consumer demand when our economy develops real strength.  As a result of this, the trade deficit gets much worse when our economy strengthens.  Bring on a recession, such as in 2009 and we see the deficit improve, albeit remaining in deficit.

With the strengthening economy from 2017-to-date, we have seen an additional $100 Billion of deficit register on the above view.  That is a lot of additional trade deficit in a short amount of time which underlines our inability to produce domestically to meet strong demand when our economy kicks into gear.

Trade war concerns aside, a continued increase in this deficit will not be surprising if we continue to register the type of economic strength that we have seen of late.  If the trade deficit improves notably in the near-term it will most likely be occurring in light of slower economic growth.  The logical conclusion of that result will surely leave the stock market at lower levels.

It all feeds back to market participants concern of this process and ultimately leading to slower economic growth leaving our highly valued markets vulnerable with little growth to support them.  If we go there, markets are certainly going much lower – hence the nervousness and volatility.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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