"Trying to sift through economic policies in today’s market" by: John Sample

   With all the news coming out of Washington DC, it seemed appropriate to have a Cliff Notes version of Economics 101. 
   There are actually two sides to economics - fiscal and monetary policy. 
   Monetary policy is controlled by the Federal Reserve through its management of the money supply and interest rates. 
   Fiscal policy are measures that Congress employs such as taxes and subsidies. 
   Each factor has come into play under the current Administration and we are witnessing the perceived impact on the stock market.
   Talk about possible tariffs on imported steel and aluminum might be proffered as a fight against unfair trade practices and to support the two named industries in the U.S.
   There are other consequences, not to mention a possible trade war.
   What will the rise in these products’ costs mean to those companies that sell the end product that contains aluminum and steel? Two major players would be the auto industry and aerospace. You don’t have to look far to see close neighbors in Canada and Mexico that could be impacted and this is happening in amid talks to revise NAFTA.
   Before you assume that all tariffs are bad, never forget that back in the 80s, Harley Davidson was about to be wiped out by the influx of motorcycles from Japan. The government stepped in and placed a tariff on imported bikes. That tariff has been removed, but it allowed Harley to return to a competitive nature. 
   Also, many of our trading partners have protective tariffs in their own countries to support their local companies. 
   None of this is to justify any proposed action, but to suggest we need to keep a clear view of what the rules are outside the borders of the U.S. 
   I’m always amazed how bribery is a fact of life in many countries we try to compete against. I don’t support that, but it is a fact of life and you only have to travel south of the Rio Grande to experience it first-hand.
   The reason for mentioning the two sides of economics, macro and microeconomics, is that every measure seems to have an impact on the economy. 
   The tax cut was touted as an economic booster while the spending package was a long-term problem. 
   This is a different way of saying that more money in consumers’ pockets is a stimulus until the time comes to pay the bill. 
   That is why you hear so much talk in Washington about a balanced budget as compared to a large deficit, whether it is debt or trade.
   Investors are trying to determine if the economy supports growth and therefore earnings. Companies that can grow their earnings and revenues will find their stock prices climbing. This usually happens when the economy is strong and therefore the focus on what the Gross Domestic Product will be quarter to quarter. 
   It’s important that you need to have some knowledge to work with as the avalanche of news stories comes cascading toward you. 
   Why? Have you seen the recent volatility in the equities markets? That is a measure of the uncertainty on the future of the economy in the U.S. and worldwide. 
   As an investor, you have to work through all you hear and read and determine what to do with your savings.  may be boring but it pays my light bill.
   Micro/Macro Gobbledygook

 

Rate this article: 
No votes yet