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MoneyWhy investors shouldn’t let the trade war distract them from the big picture

10:30  04 june  2019
10:30  04 june  2019 Source:   financialpost.com

Apple earnings could be slashed 29% if China retaliates with product ban, warns Goldman Sachs

Apple earnings could be slashed 29% if China retaliates with product ban, warns Goldman Sachs Worries over the wider impact of the trade war have intensified after the U.S. blacklisted Huawei Technologies Co. last week, which places a question mark over the Chinese company’s partnerships with U.S. chipmakers, software and component suppliers. Goldman believes Intel Corp.’s latest XMM modems for the iPhone are made in the U.S., while Apple’s A-series chips are made in Taiwan and memory and display components also originate from outside China.

One of the biggest mistakes that both professional and regular investors make is to confuse the performance of the economy with that of the stock market. It is hard to blame them , as headline reporting is constantly trying to tie the two together.

Investors shouldn ' t waste time worrying about the trade war . So says Darius Dale, managing director at Hedgeye Risk Management. The Federal Reserve has warned that an escalating trade war could damage the economy by raising prices for businesses and making their materials harder to obtain.

Why investors shouldn’t let the trade war distract them from the big picture© Provided by PostMedia Digital dog

One of the biggest mistakes that both professional and regular investors make is to confuse the performance of the economy with that of the stock market. It is hard to blame them, as headline reporting is constantly trying to tie the two together.

These days, the headline fears are coming in the form of U.S. President Donald Trump’s trade policies, particularly the fights he is picking with China and now Mexico, the latter despite recently agreeing to a new North American trade deal.

Josh Brown, CEO of Ritholtz Wealth Management, recently cited a great analogy he credited to fund manager and author Ralph Wagner.

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A trade war is when a nation imposes tariffs on imports and foreign countries retaliate. Trump's trade wars with China and Europe have hurt growth. But it also raised food prices for Americans who were already suffering from the Great Depression. Other countries retaliated with their own tariffs.

Let ’s take a look at two examples from this week. How many of you read the report released on Tuesday called IBD/TIPP Poll? “Despite concern over a potential trade war , the majority of poll respondents support tariffs levied “I actually think he’s (Trump’s) right on the big picture on trade .”

“There’s an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch.”

“But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the dog watchers, big and small, seem to have their eye on the dog, and not the owner.”

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Trade is good (generally speaking). Rapidly growing economies tend to have a few things in common, one of the most important being that they are deeply engaged in In the big picture , the story of the rapid rise in incomes since the Industrial Revolution, and for many countries following World War II, is

In addition, investors can seek protection against trade -related stock declines by buying puts of industrial-sector ETFs, Deshpande says. The market is clearly not taking the possibility of a trade war seriously—but investors should still be prepared, write my Barron’s colleagues Avi Salzman and

Equity markets provide an opportunity to participate in the long-term growth of corporations as an owner. While there may be bumps and turns along the way, the end destination is usually a favourable one.

This doesn’t mean that you shouldn’t try to minimize the diversions, but it’s imperative to follow the owner and not the dog.

Interestingly, it is amusing to watch economists play this game as well trying to predict which way the pooch will turn, citing all kinds of economic data from record low levels of unemployment to the latest GDP figures. For example, there are those calling for rate hikes by the Bank of Canada this year in contrast to those south of the border calling for rate cuts by the Federal Reserve.

This makes it very confusing for investors, but it doesn’t have to be.

We believe that the current environment is very supportive to businesses, especially those outside of Canada. The U.S. is leveraging the connectivity of the internet and as a result companies like Google, Netflix and Amazon have posted some explosive growth. However, this growth hasn’t translated into inflation and so you have the unique situation where interest rates remain at ultra-low levels and could go even lower should the U.S. continue to see a negative impact from its current trade-policy positioning.

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Investors , don' t increase or decrease your exposure to stocks based on predictions of Republicans’ and Democrats’ net gains in Congress. Another incorrect inference some may draw from the data is that whether Republicans or Democrats win, the 12 months following a midterm election is an

The Big Picture . President Trump backed off a U.S. and China trade war , but Beijing's Made In China plan for tech supremacy risks a cold trade war with devastating global costs. Why was Trump so quick to relent? He may have favored a unified approach to North Korean diplomacy. Congress is weighing legislation to beef up the CFIUS to let it oversee more transactions, including technology

This is important as the low cost of debt is being used as fuel to support share buybacks, dividend hikes, acquisitions and the scaling up of businesses. Last year was a record for U.S. buybacks and dividends, totalling more than $1.08 trillion and nearly $116 billion, respectively.

On the deal front, advised global M&A volumes reached $3.35 trillion last year, their highest level since the record breaking 2015, with U.S. deals representing half of total volumes, according to Dealogic analysis.

All this activity doesn’t mean an end to market corrections. According to LPL Research and Ned Davis Research, the S&P 500 has undergone an average of 3.2 corrections of more than five per cent per year since 1990. But it also doesn’t mean that these corrections are linked to economic performance as there are years that markets and economies move in opposite directions.

The next time you’re out walking the dog or reviewing your portfolio, remember to ask yourself: what is your ultimate destination?

Martin Pelletier, CFA is a Portfolio Manager and OCIO at TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment firm specializing in discretionary risk-managed portfolios as well as investment audit and oversight services.

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TORONTO — Canada's main stock index closed just shy of a three-week high Friday after the heavyweight financials sector was bolstered by a positive housing report. Volume was light across North American markets as investors awaited two big events in the coming weeks — next week's Federal Reserve decision about interest rates and a meeting between the U.S. and Chinese presidents to discuss trade at the G20 summit the following week. It's not atypical for markets to wait to see results from meetings of this importance, says Macan Nia, senior investment strategist at Manulife Investments.

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