Good morning everyone. In case you missed it, here’s what happened this week…Trade is in the spotlight yet again as China announced retaliatory tariffs ahead of the markets open on Friday. Targets include agricultural products, crude oil, small aircraft, and cars. I’ve chosen to include this story at the bottom for those who are as tired of reading about trade as I am sometimes of writing about it. That means we’ll kick things off this week with Pumpkin Spice Lattes and career opportunities as snake bounty hunters in the Everglades.
Markets got you down? Cool off with a piping hot cup of Pumpkin Spice Latte. Howard Schultz, the former CEO of Starbucks, was once quoted as saying, "we are in a collision course with time," regarding global warming. Perhaps to highlight the effects of global warming, the company he founded has begun offering their signature Pumpkin Spice beverage earlier and earlier every year. This year the drink is scheduled to hit stores August 27th—a month most of us still consider summer. Unbelievably, competitor Dunkin Donuts has already released their own Pumpkin Spice latte. Nevertheless, there is obviously demand for this sort of behavior. Starbucks stock has had an incredible run under the helm of CEO Kevin Johnson—up over +85% in the last 12 months.
If pumpkin spice in August isn’t hot enough for you look no further than a career as an Everglades python hunter. This has absolutely nothing to do with the markets but is too fascinating not to talk about. Tallahassee is expanding career opportunities in this field as tens of thousands of this non-native species roam the Everglades. Bounty hunters can earn $8.46/hour for a 10-hour maximum daily, must be a registered snake hunter, and receive $50 for up to 4-feet long pythons and $25 for every additional foot. With a $200 bonus for nesting females. Florida is hoping this will help stop a snake population that is currently robbing the local panther, raptor, alligator, and bobcat populations of their food. Personally, I think the only thing scarier than hunting pythons is hunting pythons in an area with panthers, raptors, alligators, and bobcats who haven’t had a good meal in years. But that’s just me.
Most Dangerous Game. On to the markets…Let’s talk about trade. The previous two rounds of tariffs cost American taxpayers an estimated $600 annually. After this latest round set to begin in September, it's estimated that the average American household will lose $1,000 annually. That’s an additional $400 less you’ll have to spend on food, gas, and tickets to Saint Louis’ new XFL team the BattleHawks. The threat to the U.S. economy as a result of the trade dispute with China is now considered severe enough that the Federal Reserve has begun to step in and lower interest rates—rates which are already historically low—to preserve economic expansion in the U.S.
This is a dangerous game for everyone. And China has a trump card that President Trump does not. There's a chance, as with every election, that the incumbent President will not win reelection. And China appears content to wait out the trade war until 2020 in the hopes a more accommodative Democratic candidate wins. To this end their latest round of retaliatory tariffs appear to be targeting Trump's voter base where it hurts the most—the Midwest. Tariffs on Soybeans will hit Iowa's economy. And tariffs on American automobiles will hit Michigan and Ohio's economies.
It’s unclear what the long-term effects of this trade dispute will be. In the short term the U.S. manufacturing sector, which is largely export-driven, is now showing signs of slowing. This is an important reminder that a trade dispute between the U.S. and China does not just affect the U.S. and China. It hurts growth in other countries as well. It should come as no surprise then that slowing global growth means fewer countries can afford to import goods from the United States.
What will the outcome be if China’s wait-and-see approach works? There are too many what-ifs in this scenario to even begin to speculate how all of this will end. But it does make you wonder if the potential upside outweighs the potential downside to a prolonged trade dispute.
To this end, the market drop on Friday seems to be more of a reflection of the fact that there is no clear end in sight to to this trade battle than the new tariffs themselves.
CNBC has more on the trade war impact here: Here’s what new tariffs will cost an average American household.
Concentrated. Tech companies now make up more than 25% of the value of the U.S. stock market. Five of these companies (Facebook, Amazon, Apple, Google, and Microsoft) make up close to 15%. The last time this happened was 2000. Technology has come a long way since then. During the dotcom bubble the concern was that tech firms were unable to justify their high valuations. Today is a different story. Those same five tech companies generate 12% of all pre-tax profits from non-finance firms in the U.S. Leading many to ask, have these tech firms accumulated too much power?
Have a great week everyone! And as always, thanks for reading.
*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.