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The recent good news about China has been hidden by all the “tariff war” media antics.

Yup, it looks like China will be running out of room on the board soon – I’ll explain more about that below.

And they’re not the only ill-perceived "threat" on the economic horizon.

Remember we said that you should expect the financial and economic noise volume to rise as we get deeper into the summer haze.

That’s because fewer people are around, and even fewer are paying attention, which means there’s a media need to create glitzier ads, scarier headlines and deeper drumbeats; all of which hint at significant danger lurking just up ahead.

And that brings us neatly along to Europe where the other front of the so-called "trade war" is being fought - and the topics the headlines missed:

"President Trump on Wednesday declared a 'new phase' in the relationship between the U.S. and the European Union, agreeing to hold off on proposed car tariffs and work with the EU to resolve their dispute over metals duties, while also promoting bilateral trade.

Speaking in the Rose Garden of the White House alongside European Commission President Jean-Claude Juncker, Mr. Trump said the U.S. and the EU had agreed to 'work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto-industrial goods.'

'This was a very big day for free and fair trade,' Mr. Trump was quoted as saying. He noted also that 'the U.S. and EU would resolve' the steel and aluminium tariffs he imposed earlier this year and the retaliatory tariffs the EU imposed in response."

For those suffering from beach or vacation haze, the vitally important words here are:

"...work together toward zero tariffs, zero non-tariff barriers and zero subsidies."

What the hype is not showing you is how free and fair trade requires the absence of government-imposed restrictions and subsidies.

And yes, it’s easy to conclude that Donald Trump gets this idea.

While it is easier to fall into the trap of assuming he is a madman intent on starting another global trade war, it is safer to presume he does know that tariffs are bad, and even stupid.

Sure, the route he chose to get to the goal of zero was long-winded and somewhat risky. And, he has been openly and justly criticized on both sides of the political aisle for unilaterally imposing tariffs on our major trading partners.

But, as we said months ago, there’s clearly a new Sheriff in town (the USA) and one who has to credibly threaten to raise tariffs in order to ultimately lower them.

And the forest of seeds being planted right now could mark the beginning of a new era in global trade and prosperity.

If Mr. Trump can indeed convince China they should follow along with Europe the future will "suddenly" look far brighter than currently perceived.

Just remember this: Tariffs are universally understood to be bad and, as such, global leaders will eventually do the right thing - making trade freer and fairer in the end.

Even though it has been messy - betting against what would be a win-win for all parties involved has rarely been a good long-term bet.

Add that line of thinking lends itself to the striking misunderstanding about the massive and ongoing demographic shift headed our way over the next 25 years, which is a great reason to remain optimistic about our future.

Too Much Noise?

Under the category of "does it really matter?" arrives this latest analysis:

Trade War Chart1

There has been much so much chatter about beat rates and how that pace is slowing as the benefits of the tax bill begin to wear off.

But the truth is that they have not worn off at all.

In fact, they’ve barely been felt yet as it can take years to seep in and deliver long-term benefits that then pour back out from the economy.

Now, the charts above do show that the pace of "beats" has edged lower since the last quarter to 67.3% of the roughly 1500 companies already reporting for Q2.

And while that may seem disheartening, keep in mind that there have only been 7 quarters since 1999 where that number was higher. 

That's 7 quarters out of 76 quarters.

Not too shabby.

The second chart (above) shows the pace of positive guidance, which is also slowing a bit as the analysts catch up. 

This is yet another example of suggesting the market is simply resting - if you don't own a bunch of tech then this year is a yawner so far for the most part.

By the way, "yawner years" are, more often than not, followed by moves to the upside and not downwards.

Forward guidance numbers are still more positive than negative.

The second chart above also helps you see that, after years of companies generally guiding more negative than positive from 2011 through 2016, sentiment shifted to being more optimistic since the start of 2017.

Mike_williams
Author
Mike Williams
Founder and Managing Partner