You’re Getting Skewed
When investors try and mix political views with market reality they’re in for a whole lot of frustration and political skewing.
Please note all the "extreme fear" readings now on the data dashboard. That reading actually fell to “7” by close of play last Friday.
It’s ugly for some but it’s also very good news if you’re a long-term investor.
That’s because what generally follows a bunch of red circles in sentiment dashboards like these are green numbers show up in the value readings, and usually in relatively short period of time.
Now, here’s a classic picture that millions of people have fawned and fretted over:
Is this guy upset or just finishing off a handful of M&Ms? Was this picture even taken on the day of that circa 1% “plummet”?
Get a grip folks.
It’s all Hollywood, done Wall Street style.
Now, market reactions suggest investors were apparently "taken by surprise" by Trump’s proposed tariffs on selected Chinese goods.
The goldfish bowl suggests everyone forgot that he publicly listed his trade policies during a campaign speech on June 28, 2016.
Then he did it.
So, now we’re getting angry and upset about a politician actually honouring his campaign promises?
Here was his checklist:
“A Trump administration will change our failed trade policy—quickly. Here are seven steps I would pursue right away to bring back our jobs.
“One: I am going to withdraw the United States from the Trans-Pacific Partnership, which has not yet been ratified. [Check.]
“Two: I'm going to appoint the toughest and smartest trade negotiators to fight on behalf of American workers. [Check.]
“Three: I'm going to direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers. I will then direct all appropriate agencies to use every tool under American and international law to end these abuses. [Check.]
“Four: I'm going tell our NAFTA partners that I intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. And I don't mean just a little bit better, I mean a lot better. If they do not agree to a renegotiation, then I will submit notice under Article 2205 of the NAFTA agreement that America intends to withdraw from the deal. [Check.]
“Five: I am going to instruct my Treasury secretary to label China a currency manipulator. Any country that devalues their currency in order to take advantage of the United States will be met with sharply." [Pending.]
“Six: I am going to instruct the US Trade Representative to bring trade cases against China, both in this country and at the WTO. China's unfair subsidy behaviour is prohibited by the terms of its entrance to the WTO, and I intend to enforce those rules. [Check.]
“Seven: If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful presidential power to remedy trade disputes, including the application of tariffs consistent with Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.” [Check.]
These notes are aligned with some help from our good friend Dr Ed Yardeni and his team. By the way, Dr Ed has a great new book out. You can see it here.
So, eh, is it working?
Well, on Monday morning, before the markets opened in the US, Chinese officials were being very clear when they said:
"China is willing to hold talks with the United States to resolve their differences over trade," Premier Li Keqiang said on Monday. His statement went on to say, "China is open to increasing purchases of semiconductors from the US to reduce the trade imbalance and to also open its financial sector to permit direct investment from US companies.
"China will no longer force foreign firms to transfer technology and would strengthen intellectual property rights."
The message here is simple:
- Always separate investment reality from political views, and
- When it comes to political posturing in the press, check out the facts behind the headlines.
That way you won’t get skewed.