Rates and Trump being Trump---3/7/2018

The bulk of the market's gyrations over the last several weeks has been built off of the foundation of rising interest rates.  Rising interest rates, per the mathematical formulas used to value stocks, puts downward pressure on the price of stocks.  To put it simply, if you can get more return by investing in bonds then you will demand a cheaper price (higher return) from stocks to make up the difference.  And, to be blunt, I think rising rates are a good thing for the economy and for savers/investors.  It means things are clicking along quite well in the economy and because of that people can get a higher return on their savings; win-win.

But just when the market was coming to grips with higher rates, President Trump drops a bombshell and says he's going to put tariffs on imported steel and aluminum in response to China "dumping" these two commodities on the market.  In this context, dumping means selling it for a loss to gain market share.

First off in regards to these tariffs, I think this is Trump being Trump.  That is, I believe he is using a sledge hammer to try to ram home a negotiating point.  And I think there are two points he's trying to negotiate.   The first is NAFTA.  Canada and Mexico are huge trading partners of the U.S. and they have benefited massively from NAFTA.  If Trump were to hammer these two countries with tariffs on steel and aluminum, they would be hurt quite a bit (especially Canada).  I believe he would exclude them from tariffs, if they concede on a few NAFTA negotiating points.

Secondly, I find it fascinating that just a few days after Trump announces his plans to put tariffs on Chinese steel that North Korea wants to hold talks about de-nuking.  It is widely known that China holds a lot of power over North Korea, but for some reason there has been nothing China could do to bring North Korea to the negotiating table.  President Trump decides to impose tariffs on Chinese products, thereby hurting China financially, and, all of the sudden, North Korea has a change of heart and wants to talk.  Hmmm.

Who knows if any of that is true, but the bottom line is that there is a good chance, in my mind, that the market is over-reacting to the Trade War scenario.  Time will tell.