21 Aug Economic Update 08/21/2019
Things are heating up. The new developments in politics globally, and here at home are changing the economic landscape. As drama in Hong Kong escalates, other countries (including the U.S.) have been pressured more and more to become involved in the situation. It is likely that Hong Kong’s resistance will not survive very long without some form of outside assistance, but when that assistance will come, is still very much unknown. The tariffs are still involved in this conversation as well. With no sign of the Trump administration backing down, it’s important that we stay informed on the situation.
First, the ban on Huawei has been put off largely because 5G technology is on the rise. By banning the use of Huawei trade to the U.S. many technology companies could suffer domestically, Apple included. The CEO of Apple has recently talked with President Trump concerning this giving Apple an unfair disadvantage. This is based in the fact that their products are manufactured in China, while their largest competitor Samsung, manufactures their products in Korea. This tells us that the worlds largest tech company is looking to get ahead of the problem, which means there is potential for a problem big enough to get Apple a conversation with the President.
Outside of the agricultural field, there have been blows that have hit us here at home. Home Depot and Kohls, the tale of two retailers. Home Depot and Kohls have different relationships with China. Home Depot really doesn’t have much of a relationship with China as 70% of their goods come from the domestic economy, while Kohls depends on China for 20% of their products. The difference between these two companies is that Home Depot has beaten their earnings estimates every quarter since 2012. Kohls stock has dropped nearly 26% this year while the market at large has risen by 18%.
It’s not just retaliation from China that has affected our economy, but also from the E.U. Mountain Laurel Spirits LLC lost 10% of it’s sales overnight as its European distributor stopped all purchase of its award winning ‘Dad’s Hat Whiskey’. U.S. Whiskey exports to Europe in total have dropped 21% from June 2018 to June 2019.
Other than doing their best to get the lost money back to American farmers, the Trump administration has discussed reducing capital gains taxes by indexing them to inflation. This would cost the United States about $100 billion. Outside of this, Trump has also called for the central bank to cut its benchmark rate by at least a percentage point. This is something that is usually only considered when the U.S. economy is struggling. Now there are signs, such as the Bond market, but that doesn’t mean that there is a recession coming. All these signs mean is that there is going to be more of a shake up in the days, weeks, and months to come. Make sure that you stay prepared, informed, and persistent.