April 9, 2018

Tariffs: Peter Navarro VS Larry Kudlow

Excerpted from Doug Kass twitter

Tariffs are a zero to negative sum game - they produce cost push inflation. 

Larry Kudlow may have been a calming influence yesterday but it is the economic handmaidens and trade hawks (Wilbur Ross and Peter Navarro) that have Trump's ear.

To me, the views that animate Navarro's policy prescriptions, unlike Larry's, demonstrate his economic illiteracy.

* There is no inverse relationship between imports and GDP as Navarro asserts.
* In fact, there is a strong positive relationship between changes in trade deficits and changes in GDP.

Both Navarro and Ross are proponents of steel tariffs. As I have mentioned, such tariffs hurt producers that utilize steel products much more than they benefit a smaller population of steel producers. The byproduct of which could be rising steel costs which may ripple throughout the economy.

In reality, the US depends on China - we are in a flat, networked and interconnected global economy:

1. The Chinese export market is important to the U.S.

2. China produces low cost goods that benefit American consumers.
3. China funds our budget deficit, their surplus of savings is imported to the US - squaring the circle. If China stops buying our Treasuries, where do we get funding?

We need more Kudlow and less Navarro - but I am afraid, as mentioned above, that Navarro will prevail. If so, more shareholder wealth may be destroyed and CEO confidence (and spending plans) may be damaged. 

The Interest Rate Tightrope

Then there is the issue of Fed policy that we must superimpose upon hastily crafted trade policy.

Remember, the path of interest rates are often even more important than fiscal policy. Consider that the Federal Reserve raised rates at the same time Reagan reduced taxes in 1981 - and, despite lower taxes, the U.S. immediately fell into a recession.

Today the two year US note yield is once again above 2.3% and LIBOR continues its uninterrupted rise - a subject oft discussed in my Diary.

With increasingly ambiguous signs of economic growth (in both the US and EU), the odds of a last half 2019/early 2020 recession may be ++

April 8, 2018

Covered SPY shorts

Doug Kass has covered his short position on the S&P500 ETF

"I am now no longer short SPY
The market is so wild I want to book the large profit and reassess things when I wake up in the morning."

March 28, 2018

Peter Navarro vs Larry Kudlow

"Peter Navarro's appearance on CNBC is another reminder that cheerleading, though appealing to Presdient Trump, no longer soothes the markets anymore.
His performance, in my view, hurt more than it helped. The market needs more "Cuddles" (Larry Kudlow) and less Peter Navarro."

via twitter

March 26, 2018

Social Media and investments

Doug Kass talks about social media and its effects on investors.

Social media is where narcissism & centralized network effects collide, with the most catastrophic effects upon civilized society. Smart people have a problem, especially (although not only) when you put them in large groups. That problem is an ability to convincingly rationalize nearly anything... 
This explains how supposedly intelligent investors, fiduciaries, can rationalize buying negative interest rate paper, or buying TSLA tertiary equity distributions, in fiduciary accounts, or how insane monetary policies can be viewed as "normal" or without consequences. However, if we plow through all the extraneous BS, all the "smoke screen" nonsense passing for analysis or "logic", in effect simply "cut to the chase", then the fact that human nature NEVER changes makes market analysis much cleaner and much more like the "old", "outdated", human-based analysis. When it comes to "markets" nothing ever really changes, just the names, faces, and timing. Machines will greatly amplify and exaggerate the downside in much the same way they did the upside. The really interesting part will be watching the Central Bankers wrestle with that "genie" that escaped from their "bottle".

via twitter