The markets overcame the previous quarter’s loss leaving the Morningstar broad index up 3.08% for the year. Again, the growth side of the market leaving the rest in the dust. Last quarter I wrote about volatility and we are experiencing it. Given our headline news I’m not surprised. Investors should look at the earnings of the companies they own and not whether WWIII will start with North Korea, White House employees being asked to leave restaurants, or if there will be a trade war. My personal opinion is that a lot of things are being done that have been neglected by both parties for too long. It is uncomfortable to go thru what I see as necessary changes. Unfair tariffs on U.S. products, corporate tax rates, and Europe paying for at least half of their own defense costs, to mention just a few, need to be addressed. Henry Kissinger just gave an interview explaining it way better than I am able. I will discuss below.
In June I attended the Morningstar Investment conference in Chicago and listened to the latest thinking on where and how to invest. Almost all the big money managers are optimistic on the markets. Prices are high, but the corporate earnings are, with few exceptions coming in above expectations. The Fed will raise interest rates but at a rate that is acceptable, needed, and expected. Banks and corporate balance sheets are in the best shape they have been in for a decade and improving.
In my January letter I discussed Bitcoin and blockchain technology. In January Bitcoin was trading at $15,500.00; today it is trading at $6,471.00. Buyer beware, a lot of these companies have been hacked, others are pure frauds, and some are just going bust. The advice of my prior letter still holds, don’t fall for the quick "make money" or "you have to buy now" lines we are receiving by vendors trying to get us to place our funds with them. A few words regarding the potential for trade wars and its adverse effect on the markets is in order. Using China as an example, the Chinese currently owns $1.18 Trillion of our Treasuries and every year this number grows because of the trade deficit. At some point they could decide to stop buying or start selling vast amounts; as a result, this could cause havoc in our markets. Ignoring this and allowing the deficit to continue to grow as both parties have is hard to understand and irresponsible in a way I cannot comprehend. To continue would be like a diabetic not watching how they eat, a sure path to bad results! The U.S. currently exports around $130 Billion a year to China. Trump has
imposed $50 Billion in tariffs and China has responded with $50 Billion back. Trump has proposed $200 Billion more. The Chinese would respond in kind, but they are limited to the $130 Billion so they then have to go to the treasuries. The results at this point most likely would prove disruptive but not destructive. To allow more would be like the diabetic example. Autos are another interesting area in the trade discussions. Our cars sold in Europe and other countries have 20% slapped on them yet we only charge BMW, Mercedes, etc. with only 2%. I am sure there was a logic to the agreements when they were made but these agreements need to be changed. As I said above it is uncomfortable, but I think necessary. Stay tuned.
In closing, a little business: if you would like a copy of our ADV please let us know and we will send one to you. As a reminder this is the document which we file with the Securities Division/FINRA on how we operate as a business, the fees we charge, and information on Bill, Keith, and myself. Also, if your financial situation or goals change please let us know, so if necessary, we can adjust how we are investing your funds. I hope you had a pleasant 4th of July. Our family has a tradition of reading the Declaration of Independence! It is a good exercise which I would encourage you to try.
Willis G. Ashby, President and CFP®