Investors would do well and remember the words of Sir Arthur Conan Doyle who opined that “It is stupidity rather than courage to refuse to recognize danger when it is close upon you.”
About tariffs, the great economic journalist Henry Hazlitt said: “And this brings us to the real effect of a tariff wall. It is not merely that all its visible gains are offset by less obvious but no less real losses. It results, in fact, in a net loss to the country. For contrary to centuries of interested propaganda and disinterested confusion, the tariff reduces the American level of wages. Let us observe more clearly how it does this. We have seen that the added amount which consumers pay for a tariff-protected article leaves them just that much less with which to buy all other articles.”
A few days ago, Llewellyn H. Rockwell published on the Mises website an interesting report entitled The Menace of Tariffs (see www.Mises.org of November 19, 2024).
Rockwell concludes that, “If we look at it now from the consumer’s point of view, we find that he can buy less with his money. Because he has to pay more for sweaters and other protected goods, he can buy less of everything else. The general purchasing power of his income has therefore been reduced. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. But what is clear is that the tariff - though it may increase wages above what they would have been in the protected industries - must on net balance, when all occupations are considered, reduce real wages”
Consumers in the US are already now, not in “great shape” as some economist keep telling us time and again. This is evident from the results of retailers. According to Bloomberg, “Kohl’s now expects its 2024 comparable sales to fall between 6% and 7%, lower than its earlier guidance of a 3% to 5% drop. ‘Our third quarter results did not meet our expectations as sales remained soft in our apparel and footwear businesses,’ Kingsbury [the CEO] said in the statement.”
Last week, Target Corp. shares fell more than 20% after the retailer cut its profit outlook and said shoppers are spending less on items like clothing and home goods.
In Europe economic conditions are even worse than in the US with consumer confidence also depressed. According to Bloomberg, “Euro-area business activity unexpectedly shrank in November, a sign of the damage being wrought by political chaos and heightened discord over trade. The euro fell to its weakest levels since 2022 against the dollar as traders priced in more interest-rate cuts from the European Central Bank. The chance of a 50 basis-point reduction in December rose to 50%, from about 15% at Thursday’s close.”
Jokes about the EU are now common (see link below)
Source: @airkatakana
Charles Kindleberger pointed out in Manias, Panics, and Crashes, “In the manic phase, people of wealth or credit switch out of money or borrow to buy real or illiquid financial assets.”
Individuals and Institutions have reduced their cash and are all in the stock market euphoria.
There is, however, one investor, a rather well-informed and successful one too at that, Warren Buffett, who is not buying into the euphoria but has increased his cash holdings considerably
I find the situation to be rather funny or to put it more colloquially, symptomatic of every peaking bull market. Here we have small speculators buying into everything that moves during the current investment mania while one of the most successful investors who opined to be “fearful when others are greedy” is increasing his cash position as a percentage of total assets
My friend Kevin Duffy (duffy@bearingasset.com) notes that “while the U.S. share of the world’s stock market capitalization is about 60%, China’s is just 4%. Adjusted for ‘free float’, China has roughly 10% of total market cap, well below its 19% share of global GDP. According to The Economist, ‘America’s share of the global stock-market is 2.3 times its share of GDP - a ratio that has never been higher.’
China also gets no respect when it comes to emerging markets. Says Brendan Ahern: ‘China’s economy is $18 trillion GDP, but India at $3.5 trillion actually was a bigger part of global indices. It makes no sense, but it just shows there’s is incredible underweight Chinese equities globally.’”
Lastly, while I understand as to why investors are negative about emerging economies, I feel that emerging stock markets are near major lows (not India) whereas the US is near a major high. Moreover, I see an increasing number of emerging market stocks that seem to have completed major lows.
The current economic, social and geopolitical conditions remain favorable for precious metals and mining companies. I am becoming interested in platinum, which seem to be at present particularly inexpensive relative to gold and silver. The platinum market is relatively small and could in future be squeezed just like the Cocoa and Coffee market.
Our readers are well advised not to forget the words of Alexis de Tocqueville who opined: “Experience shows that the most dangerous moment for a bad government is usually just as its starting on reform.”
Lastly, as we do at this time every year, we contribute to a number of charities and I invite my readers also to support these worthy initiatives.
My friend Barry Hoffner of Caravan to Class, which we also support, has written us a very nice letter, which I am enclosing to this report.
I wish all our readers a wonderful festive season.
With kind regards
Yours sincerely
Marc Faber
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