China. Trump. Tariffs. A funny video from JibJab Big Box-Mart
Let the tariff wars and isolationism begin…Not a solid development in my opinion.
Well, the deadline for a trade deal has come and gone and starting today, the U.S. will add more tariff money to the U.S. treasury but U.S. consumers will largely foot the bill via higher prices across most of the important spending categories. I have a hard time believing most investors/consumers won’t realize this strategy designed to help is most likely going to hurt he American consumption engine. That’s not a sound platform to run a re-election campaign on so the administration better not let this get too far out of control. Yes, China has been a bad actor for a very long time, but our reliance on China to provide cheap goods that keep America’s consumption engine running is NOT to be ignored. There is no free lunch. Regardless of my opinions about Trump, he has now added more uncertainty into the markets which will likely create more volatility spasms in both directions. When committed buyers step away and short-term gamblers and algos & dark pools trade on headlines and very short-term momentum signals, the average investor can get a frequent bout of sea-sickness.
The good news: the market loves to shoot first and ask questions later so for now. That offers focused INVESTORS an opportunity to add or build positions in great companies temporarily on sale. As a guy who used to trade for a living, I love volatility because it offers great long term value even if it provides a more volatile short term ride. None of us can control the market, but we can react and adapt to it for our long-term benefit. That’s what we will be doing for the foreseeable future. We have some cash and are ready to spend it when the time is right.
What will we focus on?
Brands that do not have too much tariff risk in China – Square (payment processing for small businesses), Google, Schwab, Facebook, Home Depot, Intuit (small business & tax software), Netflix, Shake Shack (delicious burgers and milkshakes), Costco, Visa, Live Nation (the best live concerts & entertainment), Bristol Meyers, Mastercard, & Paypal (mobile payments) come to mind.
Brands that are located and focused almost exclusively on China and those U.S. brands serving Asia: Spotify (streaming music & podcasts), Nike, Starbucks, Ferrari, Louis Vitton (luxury apparel, cosmetics, liquor, jewelry), Lululemon, Alibaba (China E-Commerce, banking & mobile payments, cloud computing and artificial intelligence), TenCent (VC arm, video gaming, E-Commerce, mobile payments) also come to mind.
The tariff situation is not something that I believe will be solved any time soon. That will create higher volatility so we should just get used to it for now. This volatility, while sometimes stressful, offers real long-term opportunity as great brands get sold on short-term headlines. Companies are great at adapting to changing dynamics. There may be short term noise around earnings and price increases to consumers, but consumers also do a pretty good job at adapting. If a brand is highly relevant and resonating with consumers, they will continue being loyal, hiked price or not, if they are not adding value to the end user, they are always vulnerable and their stocks are to be avoided anyway. It’s our job to identify what to own (price takers, growth leaders, secular winners) and what to avoid. We have plenty of tools to help us make those decisions.
I’ll leave you with this funny video that is also a bit sad and highly timely. It covers the good and bad associated with sending all our manufacturing jobs overseas simply for the opportunity to keep buying stuff we probably don’t even need. Again, there is NO free lunch. But it’s a funny video nonetheless.
Have a great weekend!
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