Globalism Versus Economic Nationalism

By: Kent Engelke | Capitol Securities

Equities slumped again Friday, but the mega capitalized shares felt the brunt of the selling, an inverse of long term trends. As noted Friday, tariffs would impact the multinational companies more than the firms whose business is done domestically.

By education, I believe in free trade and tariffs are detrimental to such. But is there free trade? I do not know how to answer this question.

I would like to digress. Following WWII the vast majority of political scientists/economists would agree the US opened its borders to any country resisting communism based upon the theory that if the country is doing well economically, the odds of it falling to the communists fall. Trade deficits were more palatable than more communist satellites.

The cold war ended and for about 7-10 years, global trade expanded as formerly closed markets opened.

The above is well accepted.

Some believe the period from 2008-16 was an era where the Administration attempted global wealth redistribution via trade. The entire global business industry was built upon multipolarity and interdependency with the US absorbing any losses in this global redistribution attempt.

I question if globalism/interdependency is the pathway to economic growth and wealth dispersion, why did economic growth sputter and the global wealth divide expand? As noted many times, the last time there were four consecutive quarters of 3% growth or more was 2003-04, the longest such stretch since the early 1930s.

Obviously there is a massive disconnect, hence the global rise of economic nationalist governments.

To reiterate, I believe during the past 10 years there was a massive transfer of wealth from Main Street to Wall Street, a transfer that created today’s wealth disparity and political environment.

President Trump is turning the global business environment upside down in his quest to return wealth back to the individual.

It is my firsthand experience, any organization that is losing power or influence will take any means necessary to maintain it. Politics/economics is a blood sport.

The path and the ramifications are infinite.

This week’s trade data has now risen to considerable significance.

Friday, the all-inclusive employment data is released. All will scrutinize the data in an attempt to discern wage inflation. The individual will welcome wage inflation, but the markets do not for such will alter monetary policy assumptions, assumptions that are a large variable to algorithmic trading programs.

What will happen today?

Last night the foreign markets were mixed. London was up 0.14%, Paris was up 0.16% and Frankfurt was up 0.54%. China was up 0.04%, Japan was down 0.66% and Hang Sang was down 2.28%.

The Dow should open nominally lower on fears of an escalating trade war. Politics is emerging as the primary variable. The anti-establishment party in Italy surged in yesterday’s election. China hosts its National People’s Congress. And then there is the upcoming announcement from the Trump Administration regarding trade. Will it be as draconian as some fear? There are also announcements from the ECB and BOJ about monetary policy. Wow! It makes Friday’s employment data a second tier event.

The 10-year is up 4/32 to yield 2.85%.

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