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Trade Deals Good or Bad for U.S.?

Friday, June 12, 2015
Money and Markets
You can also access this issue on our website.
Trade Deals Good or Bad for U.S.?
Dow -140.53 to 17,898.64
S&P 500 -14.75 to 2,094.11
Nasdaq -31.41 to 5,051.10
10-YR Yield +0.02 to 2.385%
Gold +$0.10 to $1,180.50
Crude Oil -$0.78 to $59.99

  By Mike Larson

Today was all about trade in D.C., with two crucial bills that cover transcontinental trading policy hitting the floor in Congress. One passed, one didn’t. But the most important question for investors in the aftermath is this: Are multinational trade deals good or bad for America?

First, some background. Two pieces of legislation were on the table in Congress. One is designed to give President Obama and his successor “trade promotion authority.”

That’s a fancy way of saying the president can negotiate deals with foreign trading partners that Congress can’t amend, filibuster, or otherwise tinker with. All legislators would get is the opportunity to hold a straightforward “yes or no” vote.

Trans-Pacific Partnership — think NAFTA, but in the Pacific region.

Obama wants to use that authority to negotiate the Trans-Pacific Partnership. That compact would include rules covering intellectual property, environmental protection, investor rights, labor regulation, and more – facilitating imports and exports between the U.S. and countries like Chile, Australia and Japan. Think NAFTA, only for the Pacific region rather than the Americas.

The other piece of legislation covers “trade adjustment assistance.” It would offer things like job training, relocation help, and health care subsidies for workers whose jobs are threatened by future trade deals like TPP.

So what happened? After a day of debate and discussion, the House voted to approve the trade promotion bill, but not the trade adjustment bill. Because of the way Congress works, that means legislators in the Senate will have to wrangle over the trade bills all over again. That, in turn, increases the chance the whole thing goes down the tubes though a compromise could still be hammered out in the coming days.

Why is this whole process so contentious? Proponents of free trade deals say they promote and protect the interests of American executives and investors when companies sign import and export deals with foreign counterparts. For instance, they make it so intellectual property rights are protected when one of our corporations works hand in glove with a company overseas.

“Opponents say companies and executives get rich, while average workers get stiffed.”

But opponents say companies and executives get rich, while average workers get stiffed. They sign deals that result in American jobs being shipped overseas, propping up profits but leaving communities hobbled with shuttered factories and jobless workers. They say that’s what happened in the wake of the 1993 NAFTA deal.

So who is right? Would a massive new trade deal help or hurt the U.S. economy overall? Is it just another development that will enrich execs at the expense of average workers? Or is that just union-driven rabble-rousing?

What about investors? Will they ultimately benefit because the companies they own will generate higher profits thanks to new trade deals with more protections? Or is that purported benefit being overstated by trade promoters?

This great New York Times story breaks a lot of those issues down. My own opinion is that globalization and increasing trade is a trend that won’t be reversed, with or without a new TPP deal. Jobs and factories won’t be re-onshored en masse unless we are globally competitive from a cost standpoint.

Frankly, the most pressing issue for U.S. companies on the global scene right now isn’t new trade legislation. It’s the value of the U.S. dollar. If it keeps rising, it’ll put serious profit pressure on U.S. multinationals – as well as put them at a massive competitive disadvantage vis-à-vis foreign firms.

Now, I want to hear what you have to say on this topic. So please do head over to the website and weigh in.

Our Readers Speak

Greece, energy, and Middle East policy were all on the minds of investors like you over the past 24 hours.

With regards to Greece, Reader Howard said: “Both fear and lack of trust are the headwinds that Greece faces. They know it is rigged but fear the alternatives. The common currency gives German output an enormous market in which to sell its goods. All of this can only fall apart for Greece. The timing is less certain.”

On the energy front, Reader Shar said: “To bet against energy is to bet against progress, which the world is experiencing full throttle at this point regardless of daily headlines. There will ALWAYS be unexpected news releases to the masses concerning gas, oil, shipping, pipelines, etc. along with the exposed truths as today’s international Energy Agency projections. Only those outside of the industry will be surprised.

“The real trick, though, is the timing of stock buying. Since there are so many new factors involved I have settled back to a tried and true method of doing the homework, making the choices and buying a stock on extended lows and within 10 days into mild gains.”

Reader David added this additional perspective: “Early call on energy stocks — all the cited tickers show losing year, Y-T-D. And it looks like the rebound cited, based on demand not supply, while interesting and valid, omits the market-manipulation that has suppressed the prices of these stocks. To ignore the ‘cartel’ now including China, Russia, Iran along with the Middle East (Saudis, Qatar, Libya et al) is to bury our collective head in the sand.

“Will energy demand continue to accelerate? Sure! Will energy company prices eventually rise? Sure. Can one tolerate continuing stock losses? Individual decision. As a contrarian. I like your analysis, just not your timing.”

Finally, Reader Bruce C. weighed in on the Middle East policy debate. He said:

“The American leadership needs to decide if we are in or out. If we are in, that means at least 168,000 troops must go back to Iraq (as that was the number it took during the previous administration to eventually subdue the country). If we are in for a little, then we need to be all in with no exit strategy… meaning no exit. We establish permanent military bases there and install a benevolent dictator who rebuilds the country with Iraqi oil money including housing, schools, hospitals, police and military, etc. and basically bring them back to the 21st century.

“The current American leadership will never commit to such a plan. So if we are not all in, we need to be all out. All out in this case means no troops and no foreign or military aid to the entire region. Now that America is basically energy self sufficient, we can safely step back and let Europe and Russia intervene in the Mideast as needed to protect their interests.”

Thanks for the input across the board. I think the sum total of all the evidence points to higher energy stock prices. And given the incredibly cheap valuations they’re trading at, I think so much bad news has already been priced in that the risk-reward is too compelling to miss out on!

As for the Middle East, our policies are so muddled and messed up that strategic disengagement may be the only option in the end. But that doesn’t seem to be anyone’s policy of choice right now, Republican or Democrat.

If you haven’t already shared your thoughts, here’s where you can do so here. I look forward to hearing what you have to say.

Other Developments of the Day

Bullet“Deviousness and incompetence” were the words one European official used in this Financial Times story to describe the attitudes and tactics of his Greek counterparts. Not exactly what you want to see if you’re expecting a debt deal to get hammered out.

So will Greece finally get kicked out of the euro? Or will there be yet another last minute “save?” Time is running out, so we’ll get an answer one way or the other soon.

BulletTwitter’s (TWTR) CEO Dick Costolo is out in the wake of disappointing results and questions over the social media company’s strategy. User growth has decelerated to around 14% from 30%, and investors are hoping a new leader will be able to right the ship. Co-founder Jack Dorsey will temporarily step in until a permanent replacement can be found.

BulletEmerging market funds aren’t feeling the love from investors these days. They suffered $9.3 billion in withdrawals in the most recent week, according to the FT. That was the biggest drawdown since the depths of the financial crisis in 2008.

Me? I can’t help but see some opportunity here. I like to get in on the cheap when everyone else is running around with their hair on fire. So I’m scoping out new picks in select foreign markets.

BulletThe Producer Price Index jumped 0.5% in May. But rising energy costs took most of the blame. “Core” inflation only gained 0.1%, in line with economist forecasts. The strong dollar is putting massive downward pressure on import prices too. They plunged 9.6% from a year ago in May.

So does inflation look stable to you, away from the gas pump? Are you more likely to buy Twitter now that a new CEO is headed to the corner office? Have any more thoughts on Greece? Here’s the link to the website; sound off there when you have a minute.

Until next time,

Mike Larson

(P.S. Don’t miss registration for Dr. Martin Weiss’ upcoming video series, “The Ultimate Wealth-Building Strategy for Uncertain Times,” that begins on June 15 at 2 PM Eastern Time! Click here now and reserve your seat as registration closes Sunday.)



Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

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