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Morning Commentary

Trade War?

By Charles Payne, CEO & Principal Analyst
3/2/2018 9:30 AM
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Question of the Week

The gauntlet has been thrown! During campaign when candidate Trump said he would push back against unfair trade including using tariffs I asked Trump voters if they would be willing to pay more for products to make a transition back to US production and everyone said "yes."

Do you think the 25% tariff on steel and 10% on aluminum is good for America?

Post your answer below.

The market got hammered yesterday. I think it was the noise from higher yields (which have come down precipitously) to an aggressive Fed.  And now we have this 1930s style global trade war overshadowing an American economic revival that many thought was a relic of the past.


On that note, stocks are suddenly trading down with declining bond yields, which were supposed to be the end of the world two weeks ago.  The ten-year yield is now at 2.80, and even up 14.7% year-to-date (the long-term chart trend of lower-higher, since peaking in 1978, is still intact).  Look at this chart, it is so hard to believe how many mavens are saying 3.0% yield on the 10-year yield would be the kiss of death.  

Federal Reserve

As for Jerome “Jay” Powell getting in the way, he made it clear yesterday during questions and answers with the more mature part of Congress that there is room for wages to grow as there is still slack in the labor force.

Trade War

Folks, the Trump administration isn’t talking about reenacting the Smoot-Hawley Tariff Act and hit 20,000 items with import tariffs. It’s about cheap steel that comes into America nefariously and has roiled our manufacturing base.

Steel Industry Facts:

Raw Production, December 2017 - less than 100 million metric tons from 180 million in 1973

Capacity Utilization - 105% in 1974; and now, 74%

No one wants a full-scale trade war, especially China with debt that’s climbed from $6 trillion in 2007 to $29 trillion, or 260% of the Gross Domestic Product (GDP) last year.

Consumers to the Rescue

The American consumer has stepped up to the plate - the latest signs before the open.

After the close, Gap Stores (GPS) got in on the act. Gap posted financial results that beat on revenue and earnings as comp store sales increased 5.0% versus consensus of 1.7%, driven by Old Navy with comp store sales up 9.0%.  Management increased its dividend and offered strong full-year guidance.

Moreover, economic data released yesterday sent the Atlanta Fed’s GDP estimate surging to 3.5% from 2.6% (see chart). 

I’m not sure if major indices have to test recent lows, but I’m very confident there’s a lot of money to be made when the market rebounds.

Be Ready!

Today’s Session

Now that the Wall Street Journal has declared potentially targeted tariffs a mistake on par with the Bay of Pigs, I’m feeling more confident this might be the right move.  I don’t think Canada should be covered.  However, it’s time to send a message instead of bellyaching about how unfair and mean China is while accepting unfair actions that hurt our economy. 

I’m licking my chops but understand there are losers in the market that have nothing to do with this temper tantrum.  GM had a terrible sales month as Silverado sales plunged more than 16%.  It’s not about potentially a few extra pennies to finished products.

We are refining our buy list and we are excited. If you are not a subscriber to our Hotline service, call your representative or email us at info@wstreet.com.

The rate should be commensurate with the trading partners tariff/tax rate of the same goods imported into their country

Arnold Pagani on 3/2/2018 9:44:35 AM
The number of employees is understated as the businesses that support the steel business is huge. Certainly over 1,000,000. Similar to the auto industry. Agree tariff should be applied to countries that are dumping their product.

Ed M on 3/2/2018 9:48:21 AM

mamun khan on 3/2/2018 9:49:09 AM
I would, but then again this all might be an attempted bluff on the President's part, i.e. the art of the deal!

Karin Pereira on 3/2/2018 9:52:50 AM
We fully support pres Trump, no one should forget, we must be able to produce for military action against many, meaning some that we trade with now and are dependent ON. Reciprocated TAXES, will be needed to finally HELP USA. Buying all the firesales .

Ed on 3/2/2018 10:20:22 AM
yes, let's keep our manufacturing stronger at home, & slao fight for Fair Trade with other countries who block us out of their markets

richard roarke on 3/2/2018 10:56:40 AM

l garrison on 3/2/2018 11:15:38 AM
Thanks for the sky is not falling comments on yield, and by correlation, on the overhyped power of the Fed. Interestingly, John Cochrane at the Hoover Institute has an interesting column (Four Heresies of Monetary Policy) that provides on a more rationale view of the Fed and interest rates.

In sum, he says: "As we go into an economic expansion, with higher growth, real interest rates will naturally rise, Fed or no Fed. As we go into a period of low or no growth and poor investment opportunities, real interest rates will be low, Fed or no Fed. And after a few years, growth comes from productivity only, not anything the Fed can arrange."

Randy on 3/2/2018 11:19:17 AM
Tariffs are always counterproductive. Essentially a redistribution of monies from some to selected others. Government manipulation of prices/wages never turns out well.

William Perley on 3/2/2018 11:35:07 AM
I believe the initial market reaction was unwarranted. There is not tariff yet imposed. Trump will often send up a trial balloon to deliver a warning. Pros on wall street may know how to read the market but they are miserable at reading the President.

Tom Rochford on 3/2/2018 11:50:37 AM
Spot on Tom the Dow is up 300 points since you made this observation. CP

Charles Payne on 3/2/2018 12:56:08 PM
We're the United States, not Atlas, and we aren't obligated to hold up the whole rest of the world on the backs of our workers.

Patricia Flynn on 3/2/2018 11:54:16 AM
I support targeted tariffs. The hard working people of this country are supporting at least half of the population who take some form of government dole--so let them cycle some of it back to us by paying a little more for things; with money that we give them. As someone else stated above, the support industries for steel are numerous, and also stand to benefit.

Robert P on 3/2/2018 11:59:08 AM
We have to put our people back to work. Prices will go up a little. Still much cheaper than sending them unemployment checks, food stamps and paying part or all of their medical costs.

Sy G on 3/2/2018 12:19:45 PM
Amen Sy,,,Amen. CP

Charles Payne on 3/2/2018 12:54:12 PM
Charles, look forward to your commentary and your show, I think Americans are willing to take a temporary hit on their 401k to back fair trade with steel and aluminum. Fair and great trading!

Johnnie Parnell on 3/2/2018 12:26:15 PM
Thanks Johnnie and I think that "hit" will be very temporary. CP

Charles Payne on 3/2/2018 12:54:56 PM
The tariffs put us back on even playing field with countries that have been imposing tariffs on the US for decades. It may hurt some areas of the economy, but it will help protect critical areas of the economy. The administration needs to make sure the firms don't radically raise their prices now that they have this protection. Normally, I would be against tariffs.

Joe on 3/2/2018 1:45:25 PM
Yes, I believe in fair trade, not simply free trade.

Patrick Corderman on 3/2/2018 2:05:55 PM
Of course it is. The world's economies have been subsidized since WWII. It's time to wean them off the U.S. teet. Put more American workers back into middle-class jobs; re-build America's infrastructure; eliminate the "apologies" and "charity" of past American Administrations.

Joe Branka on 3/2/2018 2:06:55 PM
No. But it is good for Wilbur Ross and his investment in Nucor Steel.

Tony Haynes on 3/2/2018 3:52:23 PM
Who does not understand the word "fair"! POTUS not starting a trade war. Incoming products made here will be taxed as per the exporting country. How hard is this to understand. The panic is all about the Washington and lobbying elites....

Mitchell Schiff on 3/2/2018 3:52:58 PM
Yes...it is a great idea! Enough of the unfair and and not free trade. They started this with their taxes and tariffs. Since they won't trade fair...do unto others AS they do unto you!!!!

Reg on 3/2/2018 5:53:37 PM
No. To say it is different than the tariff on 20000 goods in not really true. Steel and aluminum are in way more items than that. It is essentially doing the same thing to all goods that use the metals in their products. They will all cost consumers more. You must be honest, the higher tariffs will mostly be a burden on the consumer. The overseas manufacturers will pass on costs and domestic producers will raise their prices as well. There obligation is to raise profitability to shareholders not pass on savings to consumers.

J on 3/3/2018 9:17:38 AM
I agree with what the president is doing but he has to also tell the steel companies that raising prices like they are doing is going to hurt small business . I have seen an increase in steel rebar twice last week and nothing indicating that it will stop.Very concerned

Patrick Colatruglio on 3/3/2018 9:52:11 AM
As a national security issue, yes. Tariffs on these commodities have been done before. I suppose if a big detriment to our economy the decision could be reversed.

Larry Leonard on 3/3/2018 11:29:33 AM
I am in favor of a reciprocating tariff or other monetary trade equalizer. The President is doing what he always does, blurt out and observe the degree of reactions and by whom, this allows him to expose the motivations of other individuals, corporations and nations. He will keep his promise and any financial "hit" we my have to absorb is worth the effort.

Bob Arnold on 3/3/2018 11:46:33 AM
Trump is doing a lot of good things but hes swinging the club to hard they should use individual duties via dumping suits Nucor Yamato developed scap based electric arc furnace continuous cast steel making out of the protection heavy Bethlehem Steel, US Steel and others whom stopped innovating losing the US edge then nearly the whole industry until Nucor Yamato innovates bringing the industry average of over 15 manhours a ton to the new scrap generated electric arc furnaces to 3 man hours a ton 5 years later 80% of steel is made from scap using the electric arc furnace continuous cast method of steel making. Care should be taken only applying Tarrifs to those countries actually dumping. Fair Free Open Trade breeds innovation.

David on 3/5/2018 12:50:11 AM
if it has to be to stop being the patsy country of the world let'er rip.

neil on 3/5/2018 6:45:06 PM
I am with you 1,000% Charles / the Trump economy IS on fire , fear Not the naysayers !!!
( & thank YOU for being the shinning light in the dark on all of this ! )

Jose' on 3/5/2018 8:59:57 PM
yes I do think it is good we should be putting tariffs on everything that other countries put on our products example if they put a 25% on a product we send there we should have the same amount on their products that send here. That is fair.

Elizabeth on 3/6/2018 5:39:52 AM
In general, I do not support tariffs. However, when imports are artificially low due to subsidies I say hell yes. We have been so stupid for over thirty years now in our policies on lots of things by negotiating trade deals that make us the weakling.

Robert Clanton on 3/6/2018 10:46:39 AM
I'm not a protectionist but I agree its time to revisit our approach and stop relying on 90 year old history and different circumstances. Some folks in this country are too comfortable in their ivory towers to know the real damage occurring on the ground. CP

Charles Payne on 3/6/2018 11:17:20 AM
We must have a diversified economy. Does anyone remember why the North won the Civil War. The north had manufacturing capacity. What, conceivably, might transpire if an aggressor (with mfg. capacity) decided to declare war against the US?

Gail on 3/6/2018 12:24:17 PM
Thank you for not joining the crowd and looking at this issue as it truly is, in fact I have noticed that Carl Rove couldn't even speak clearly which means President Trump is spot on, now if the Arizona Senators come out against it and Pelosi does too it's got to be a winner.
You are one of the few commentators that actually uses critical thinking, keep it up, I love your show.

Tom Sanders on 3/6/2018 12:58:44 PM
No to tariffs. All they do its cause trouble. They are not a benefit, they don't work in favor, never did never. Ask the British.

James A Czarzasty on 3/6/2018 5:00:54 PM
Yes, I just believe that it will help others in that industry, I will pay a little more, but sleep better knowing we are bringing back America, and getting some folks to work again in that sector. It feels right. And no I don't get excited about paying higher taxes in a general rule to the IRS.

Randall Reid on 3/9/2018 10:56:22 AM
The issue is complex since the variable of artificially lower steel prices created by foreign governments propping up these industries with subsidies is playing a role. Certainly the US props up the agriculture industry to keep food prices low. How about dealing with foreign nations and with US industries in the fairest way possible? Stop all subsidies to all sectors, keep taxes low, and then law down the law with foreign nations. Some penalty for nations that artificially lower prices with subsidies makes sense. But he who is without sin may cast the first stone. USA needs to clean up its market manipulations via subsidies first.

Daria Schooler (DoctorObvious) on 3/9/2018 3:38:16 PM
this tariff is just round 1, they have more to lose than we do and all that matters is the final result, we cannot all be snowflakes.

larry Hiller on 3/10/2018 11:26:56 AM
Yes a thousand times. I still see his expression and feel the emotion when the gentleman was telling his story to the President of when his father with six children got laid off from Steel Mill and came home to tell his family. How he felt when he looked in his fathers eyes.

Mary Shearman on 3/10/2018 1:15:42 PM

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