Donald Trump’s Twitter account’s been in overdrive this week!
As I write this, I’ve seen 10 tweets from the President in the past four hours.
And most of them aimed at Harley-Davidson.
Like this one:
Trump is furious that one of America’s most iconic brands is talking of moving production overseas.
He sees it as little short of treason.
But why the hell wouldn’t Harley take these steps?
With Trump waging a trade war around the world, America’s own businesses stand to lose billions.
And by moving some of its production outside the US, Harley will avoid 25% tariffs on its substantial exports to Europe.
I think Harley-Davidson is being smart.
It’s doing what it can to stay in business… and protect its shareholders.
And I expect see other companies follow Harley’s lead.
Corporate America is in trouble
This is a very big story for investors right now.
As countries around the world start imposing tariffs on American-made products, companies will have to find a way to avoid them. And moving some of their operations overseas will achieve that.
Because companies are NOT patriotic.
They must serve their shareholders and bondholders and their bottom line…
NOT an idiotic and rose-tinted view of some mythic American greatness that existed in the past.
What we’re seeing with Harley is the first signs of businesses fighting back against that strategy.
And the signs are that others will follow.
Take America’s flagship aerospace company, Boeing.
Boeing nosedives
It’s the best-known aircraft maker in the world. And along with Europe’s Airbus, it’s forged a powerful duopoly on the sale of long-haul planes.
Boeing sold 763 of its planes to airline companies around the globe in 2017.
And a massive 26% of those went to China, worth around $11.9 billion to Boeing.
With such command of a lucrative global market and the lion’s share of orders from one of the world’s most important customers, you’d expect the stock do be doing well, wouldn’t you?
And it has.
Over the past 5 years, Boeing stock has delivered returns of 270%, not including dividends:
Source: Stockcharts.com
But when you zoom in on the past 6 months, thing’s aren’t so pretty.
The stock’s down 11.7% since Washington and Beijing have been going at each other.
That’s not good for the huge numbers US shareholders who own the stock in their 401k (pension) accounts.
So they are dumping the stock.
The fact is, the market is spooked by what these trade wars could do to one of Boeing’s biggest customers.
Return of the bear market
Other iconic brands such as Coca-Cola, Levi Strauss and the company that makes Jack Daniels, Brown-Forman Corp, are suffering as well.
As Europe and the rest of the world retaliate against Trump’s tough tariffs, these and other US companies will find their products heavily taxed overseas.
Again, it’s going to depress revenues and profits as demand for their products takes a hit.
That means investors will pull out.
And the stock price will take a hit.
Until recently markets have been shrugging off the idea of a serious global trade war.
As though it was all Trump bluster. And it would all blow over.
But something’s changed.
They can see Trump is deadly serious. And they can see that America’s international trade partners aren’t about to back down.
So now markets are reacting.
The Dow Jones has lost 1,200 points or 4.8% over the past two weeks.
On Monday, European markets saw their biggest sell-off for two months. The FTSE dropped 2.4% or 184 points.
We’re not in bear market territory for western markets… yet.
Bear markets are a fall of at least 20% from a high. So far, the Dow’s down around 9% and the FTSE 5% from their recent peaks.
But things are starting to look shaky.
I expect to see more bad news for US stocks.
And it’s even bleaker in China.
Business Insider has the story:
“China’s benchmark share index, the Shanghai Composite, dropped 1.1% on Wednesday — leaving it nursing losses of 22% from its most recent high, extending the bear market it entered at the beginning of the week.”
There is great volatility ahead
Remember, China is supposed to be one of the great drivers for the global economy.
And its stock market is a barometer for its economy.
So, when China’s stock market suffers a 22% drop, then Western investors had better pay attention. This could be a sign of things to come in our own markets.
And don’t expect Donald Trump to take a break any time soon.
We’ve already seen that he’s deadly serious about ratcheting up this trade war.
His focus now is on protecting American technology, reports the Wall Street Journal:
“[Trump plans to] ratchet commercial tensions higher by barring many Chinese companies from investing in U.S. technology firms, and by blocking additional technology exports to Beijing, said people familiar with administration plans.”
And guess what…
If he goes ahead, who’s it going to hit hardest?
Not China.
It’s going to smack America’s very own technology companies who make billions of dollars selling to China.
That’s potentially not good news for tech stocks and the tech heavy Nasdaq index which fell 2% on the news.
Tech stocks have been some of the best performing stocks of the past few years.
But they are highly dependent on economic growth.
So, if Trump’s escalating trade war puts the breaks on world economic growth, that’s bad news for tech.
It could mean that some of the superstar stocks of the last few years suddenly look vulnerable.
And just as they’ve been leading the market higher… they could well start leading the market lower.
Let’s see.
Right now, it’s in Donald Trump’s hands. Which is what’s so worrying about this.
If he doesn’t alter course, the stock market faces a volatile patch ahead.
Crisis assets to buy now
And where do you invest when volatility spikes like this.
Well gold has traditionally been a good asset to hold during periods of crisis.
It’s worked for a few thousand years or so.
Then there’s silver.
In fact, my colleagues at Canonbury are putting the finishing touches to a report on three assets that are likely to thrive during the coming period of rampant volatility.
It’s a fascinating report…digging into a financial cult that has profited royally from suppressing volatility in the market over the last five years.
The predictions are quite stark.
– A big wave of volatility is coming
– We could see a hypercrash in the market that rivals 1987
And there are some very useful thoughts on how to protect and grow your wealth.
Keep an eye out for that…I’ll let you know as soon as it’s ready.
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