Appeals Court Rules (7vs4) Against Trump, but Life Goes On - Weekly Blog # 904

 

 

 

Mike Lipper’s Monday Morning Musings

 

Appeals Court Rules (7vs4)

Against Trump, but Life Goes On

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

All of us were unprepared

The “Founding Fathers” designed our government to protect the minority against the majority, with the courts ruling on critical decisions. Now that the future of tariffs rests with the courts, I suspect The President will push for a quick decision.

 

I would hope at the end of judgement day we will have answers to two of the motivating drivers behind The President using tariffs to force discussions with both Congress and foreign countries.

• The first is “Non-Tariff Trade Barriers”, which may be larger than the size of the reciprocal tariffs, which are policies the importing nation forces on the exporting nation. The prohibition of certain fertilizers on imported food elements, or various power constraints on mechanical equipment or transportation vehicles are examples. There are a multitude of restrictions like these imposed by national or local governments on people’s taste buds. In total, these restrictions may very well be enormous in aggregate.
• The second issue is the use of the money generated by the tariffs. (It is well worth remembering that for more than a hundred years, tariffs were the main source of funding for the US government.) Economically, tariffs are a tax on the society. However, it is not clear whether the funds raised will fall under the control of the Internal Revenue Service (IRS) or some other instrument of government. The funds raised may potentially be used to reduce the existing deficit, pay for the newly issued tax breaks, or paid out directly to consumers.

The answers to these questions are needed to solve the riddle of weather these tariffs add to or reduce inflation. The independence of the Federal Reserve Bank is therefore a critical factor in dealing with the tariff issues. Many feel the Fed controls short-term interest rates and influences intermediate-term rates. However, it is not that simple. In an article by George Calhoun in Forbes, he lists recent experiences where the Fed lowered rates while the markets raised them. One of the reasons rates rose is the dollar declined or was expected to fall. George Calhoun is a professor and fellow board member at the Stevens Institute of Technology.

 

The commodity markets are keenly conscious of inflation expectations. This week commodity futures rose, led by natural gas +2.64%, gold +1.21%, and copper +1.01%. Another way to play the same trend is in the stocks of the commodity producers, which are owned by specialty funds. Specialty precious metals funds rose +2.70%, China funds +1.31%, Agricultural funds +1.30%, and Base Metals funds +1.12%. While the Courts will decide on the appropriate questions, the markets will collectively reward those who guess right regarding the direction of prices.

 

Please provide any thoughts that might give me a clue on how to avoid losing money and perhaps make some.   

 

 

 

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Mike Lipper's Blog: What We Should Have Been Watching? - Weekly Blog # 903

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Mike Lipper's Blog: DIFFERENT IMPLICATIONS: DATA VS. TEXT - Weekly Blog # 901

 

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Significant Messages: Warren Buffett to Step Down by End of Year, Other Berkshire Insights, and Tariffs won't deliver - Weekly Blog # 887

 

Mike Lipper’s Monday Morning Musings

 

Significant Messages: Warren Buffett to

Step Down by End of Year, Other Berkshire

Insights, and Tariffs won't deliver

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

                             

You have probably already heard that Warren Buffett will step down as CEO of Berkshire Hathaway by the end of the year. Warren announced this to thunderous applause at Berkshire's annual meeting on Saturday afternoon. I am not surprised. At the meeting, which is the first we have not attended in many years, his answers to many questions were more statesman like, recognizing the scope of problems facing both the country and the rest of the globe. He referred to his Father's only political defeat as a Republican Congressman and subsequent re-election. Greg Able spoke purposely, answering an increasing number of questions. He will succeed Warren as CEO.

 

The following brief comments were delivered at the meeting largely in chronological order.

1. Berkshire expects the relationship with Japanese trading companies to likely lead to more Japanese acquisitions, probably in Yen.
2. Berkshire was in discussion for a $10 billion deal recently. Buffett indicated that he thought with Abel as CEO larger deals are likely, with more communication between the units.
3. Currently, the companies are not using AI for Real Estate and they are behind in using it for GEICO.
4. There is a global push for weaker currencies, which is a negative.
5. Life Insurance is different from the Property/Casualty insurance Private Equity is using.
6. Berkshire's stock price has fallen 50% three different times.
7. In the latest quarter, the prices of 21 subsidiaries rose and 29 declined.
8. There were no repurchases of stock.
9. Warren pays more attention to balance sheets than income statements. He is particularly interested in generation of free cash flow. He also believes quality starts from the top. There was quite a discussion about utilities, coal, and fires. The various states and political interests need to decide what they will authorize.

 

Tariffs Are Not the Answer

Far too many people believe that imposing Tariffs on various items of world trade will solve the problems of individual countries. George Calhoun, a Director at the Stevens Institute of Technology and a contributor to Forbes Magazine, raises critical questions in two articles in Forbes. (George and I serve on a board committee at the Stevens Institute.) For brevity purposes I will briefly review the first part of his second article:

 

Will higher tariffs cause inflation?

Prices will rise.

 

Alternative view:

Currency shifts neutralize price increases

 

Mitigating factors: Caveats, Fudges, & Assumptions'

There are at least 14 various measures of annualized inflation.

 

Is it really inflation?

"High prices are not the same as inflation"

There is confusion between the rate of change and the level of prices. (I may include the perception that there is no change in the quality of product or service and time of delivery.)

 

Tariffs affect only a small portion of the "The Consumer's Basket"

(Does substitution change the value of the product?)

 

(I am happy to send the second half of George's article to any subscriber.)

 

The Trump Angle

From the very first time the President introduced the use of tariffs to correct the imbalance of world trade, I believed he was doing it to force negotiations. It is already clear he will change the size of barriers, due to the manipulation of currencies. (See currency shifts above.)

Only the most senior officers can deal with these types of items.

 

 

Question: As usual I would like to hear your views.

 

 

 

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Mike Lipper's Blog: A Contrarian Starting to Worry - Weekly Blog # 886

Mike Lipper's Blog: Generally Good Holy Week + Future Clues - Weekly Blog # 885

Mike Lipper's Blog: An Uneasy Week with Long Concerns - Weekly Blog # 884

 

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Copyright © 2008 – 2024

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.