The longer a recovery lasts, the more complacent market analysts become.
Almost no one saw the 2008 stock market collapse coming. Almost no one saw the 2000 dot com collapse coming. The same was true for the 1987 market crash.
Partly this is because the market recovered from all these disasters. The averages today are still pushing higher. But each crash destroys wealth, and it is especially hard on those who are complacent, who hear the song of “the averages rise in time” as an excuse to double-down on excess.
I have been as guilty as anyone. I owned American International Group Inc (NYSE:AIG) during the last crash. I kept some dot-com issues until they died. I was “saved” by diversification, but also by the next recovery.
At 63, time is no longer on my side. Many investors are around my own age, as the baby boom pig goes inevitably toward the back end of the python. The next crash could be ruinous for a generation.
Trade Wars are Bad
Trade wars are unhealthy for markets and other living things. They are stupid, their rationales idiotic. We have run the experiment. It does not work.
Having a “negative balance of trade” doesn’t mean you have to borrow that money from your trading partner. It becomes part of your cost of goods sold. Low input prices come out as profit.
Yet here we are going willy-nilly into a trade war. Even with Canada?
Last weekend’s disastrous G7 Summit is the start of a process that could lead to American businesses facing tariffs and restrictions across the board. These trading partners won’t be hurt. They’ll double down on trade with one another. We are rapidly becoming isolated.
The Administration seems to be deliberately angering our allies, making cozy deals with our enemies and the reaction of the U.S. markets has been “meh.”
How Should Investors React?
Trying to rationalize Donald Trump is impossible, yet market analysts are now busy doing just that. Russia is a better trading partner than Germany? The White House is just a game show? Chaos is fun?
Here’s the one that really gets me — the market agrees with Trump on trade. If the market agrees with Trump on trade, then the market is stupid.
Then again, the market is often stupid. It focuses on the short term– as it did in 2012, buying big dividend companies like AT&T Inc. (NYSE:T) while condemning those which, like Amazon.com, Inc. (NASDAQ:AMZN), put every dollar they had into building out their cloud capacity.
Analysts always prefer candy now to long-term thinking. They want dividends, they want stock splits, they want capital gains. They want monopoly profits and they don’t like competition. They don’t see markets changing, and they don’t see market conditions changing. That’s just the way they are.
There are some analysts warning you about this. There always are a few. But in the middle of a noisy party, those noting that the curtains are on fire may not be heard until it’s too late.
Walk Away from the Stock Market (For Now)
I think it’s time to walk away from U.S. equities.
Don’t run away. Diversify. Make sure you have assets in other stock markets, and their currencies, so that when the dollar and the U.S. market roll over you have gains to offset the losses.
Manufacturers are going to be especially hard hit in a trade war. I like my Chinese stocks like Alibaba Group Holding Ltd. (NASDAQ:BABA). I know that whatever happens I’m going to take some losses, and I’m resigned to that.
If we really are going into a trade war, it’s time to batten down the hatches.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in T, AMZN and BABA.