Are you ready for a trade war?
Last week, President Donald Trump said he was ready to sign a 25% tariff on steel and a 10% tariff on aluminum… and mentioned that cars imported from the European Union might be next.
His tweet – “trade wars are easy to win” – is both true… and damning.
If you look at the world as a zero-sum game, trade wars are easy to win. For a while.
As Editor-in-Chief P.J. O’Rourke wrote for our February issue on Asia…
Abolishing international free trade won’t make America better – it will just make America more expensive. Almost everything we buy will cost more. And foreign economies will be destroyed.
We’ll be broke. They’ll be poor. How is this a recipe for more jobs with better pay?
And he finished with a look at what happened to Japan in the 1980s…
The Japanese refused to buy anything America made except Michael Jackson audio cassettes. And Americans didn’t even make the valuable part of those – the cassette. This left the Japanese with a very large accumulation of little green pieces of paper.
According to Mercantilist theory, this made Japan a rich and powerful nation.
Japan thought it was such a rich and powerful nation that, instead of buying things from America, the Japanese decided to buy America itself using their little green pieces of paper.
They bought office complexes, golf courses, and hotels. They bought Rockefeller Center. They bought Pebble Beach.
The Japanese bid up the price of American real estate until the bubble did what bubbles do.
By the 1990s America had all the radios, TVs, stereos, and cars. And all the office complexes, golf courses, and hotels. America had Rockefeller Center. America had Pebble Beach. And America had all the little green pieces of paper too.
Meanwhile, the Japanese had stuck their economy in a place where the Rising Sun never shines.
What It Means for America Today
Higher taxes on steel and aluminum won’t help bring back manufacturing jobs. It won’t put more money in your pocket. And it certainly won’t save the American middle class.
Now, it’s true that tariffs and other protectionist measures could benefit select companies and sectors here in the U.S… but only at the expense of higher consumer prices.
It would likely also crush sectors – like retail, which is already struggling – that depend on global trade.
Remember the Smoot-Hawley Tariffs, signed into law on June 17, 1930. In the two weeks before the act was signed, the Dow Jones Industrial Average fell more than 20%…
It would fall another 80% before the world climbed out of the Great Depression.
Then, as is now, the U.S. essentially kicked off a global trade war with the short-lived and misguided tariffs.
Then, as is now, the U.S. had enjoyed a long bull market… with the market increasing several hundred percent.
Now… we don’t mean to worry you. The Smoot-Hawley Tariffs weren’t the only cause of the Great Depression. And the trade-war saber rattling from President Trump is unlikely to immediately cause an 80% crash in the market.
But many analyst expectations of what asset prices can do over the next 10 years are getting lower and lower…
If you follow valuation measures, the cyclically adjusted price-to-earnings ratio (or “CAPE” ratio) gives you some idea what stocks will return over the next 10 years… It expects negative returns for stocks.
Rob Arnott of Research Affiliates also tracks “reversion to the mean” numbers. He concludes that stocks should return 0.4% per year (after inflation) for the next 10 years.
And American Consequences feature contributor Dr. David “Doc” Eifrig is also skeptical whether stocks will return closer to their long-term average over the next 10 or 20 years. He recently wrote…
Take a wider look from 1871 to 2016, and stocks return just 4% a year (again, using Shiller’s data). And we’ve seen long stretches where stocks have returned nothing…
From 1929 to 1954, stocks returned nothing. From 1973 to 1985, stocks returned nothing. From 2000 to 2013, stocks returned – you guessed it – nothing.
If you started saving for retirement in 1973 to retire in 1985, you were out of luck. Sorry, you were just born in the wrong decade for getting wealthy.
What if one day we look back and say the same thing about the coming decade?
Doc takes a middle-of-the-road approach to the “Melt Up” and eventual “Melt Down” that we’ve talked about in American Consequences.
He suspects that stocks won’t return 7%-8% over the next 10 or 20 years.
If he’s right about his outlook for the market over the next several years, investors like you will need to expand your investment “toolbox” to generate the kinds of returns you need to meet your financial goals. (To receive this free training, reserve your seat by clicking here.)
If stocks do nothing for the next five or six years… how will you use your investments to generate income? As Doc says…
Today, unemployment is about as low as it can get – meaning it’s “put up or shut up” time for real economic growth to take hold. Meanwhile, stocks have been marching to higher valuations without a single hiccup.
If the Federal Reserve (and the European Central Bank, and the Bank of Japan…) lightens up on its monetary stimulus, we could be in for another long stretch of “no need to log in” asset returns.
There’s a better way than sitting and waiting for the market to go up… a way to take control of your retirement account and make investment income from the market in your spare time, no matter what the market does.
Learn How to ‘Trade for Income’
Tomorrow night at 8:00 PM Eastern time, Doc is going to teach his trading strategy to a 28-year-old Colorado girl – a “newbie” with no experience – and show her how to instantly collect up to $500 trading options, from start to finish.
You can follow along and learn how to use this valuable technique to collect upfront cash payments and massively reduce your risk on the stocks that you already own.
Over the past eight years, Doc has recommended more than 200 different “trading for income” positions… and boasts a win rate on more than 190 – he’s made money 95% of the time. And he’s beaten the market while doing so on many of the safest blue-chip stocks in the market.
Again, this training lesson is free. Click here to reserve your spot.
And there’s a bonus for all folks who show up… Doc is giving away his book – The Big Book of Retirement Secrets – to all attendees on Wednesday night.
At more than 500 pages, the book contains hundreds of clever ways to help you live a happy, healthy, and wealthier life…
Inside the Big Book
Here’s just a taste of what you’ll find inside…
Retirement Hack #12: How to get a government-guaranteed 5%, tax-free, on your savings. Most retirees and those about to retire never take advantage of this incredible income “hack.” It’s a safer place to put a majority of your retirement money than Treasury securities or a savings account.
Kiplinger says these “offer comfort to income starved-investors,” and are “safe havens.” That’s why professional money managers like Bill Gross and Richard Bernstein – who between them manage over $1 billion – take advantage of this, too. (Page 143.)
Retirement Hack #5: lets you legally hide money from the U.S. government. If you’ve ever been concerned about the government’s extreme overreaching of power, this is for you. You never have to report ownership of this asset to anyone – not the government or anyone else. This is why everyone from Hollywood celebrities to U.S. Congressmen hold at least some of their money in this unique asset. You can easily keep just about as much money as you want beyond the reach of the U.S. government (page 72)…
Retirement Hack #14: A unique, little-known IRS “hack” worth an extra $15,000 tax-free a year. Are you interested in the easiest way to make up to $15,000… and LEGALLY not pay a penny in taxes on this income? It will probably take you 4-5 hours total to execute (page 37).
By the way, this book has a 4-star rating on Amazon. You can buy it there if you’d like.
But if you show up tomorrow night on Thursday, March 8 at 8:00 p.m. Eastern (again, click here to RSVP), you’ll receive it absolutely free.
Now on to the latest news…
We are simply waiting for the Federal Reserve to push the economy into recession…
There’s even more debt in the global system than there was at the start of the 2008 financial crisis – only this time it’s corporates and sovereign governments that own it. Who will be left to bail them out when the bill comes due?
If you’re in favor of protectionist policies… are you using one of these arguments?
President Trump and his supporters believe in a lot of bad ideas when it comes to trade – notions like “trade wars are great and easy to win” to “tariffs will reduce the trade deficit.”
Don’t fall for the cheap talk that Americans won’t get hurt by a trade war.
The shirt you buy may not get more expensive, but the washing machine, car, and beer can will.
Ray Dalio says don’t worry until we see an “escalating series of tit for tat”…
The seemingly aggressive posture of Donald Trump conjures up pictures of war that are very scary, so the markets react, but that doesn’t mean that such a war is likely (at least in the near term)…
Do you know what’s inside your “target date” mutual fund?
Today, many target-date fund managers have turned to riskier investments to boost returns, and Fidelity has gone further than its peers.
And let us know what you’re reading at [email protected].
With P.J. O’Rourke and the American Consequences Editorial Staff
March 7, 2018