What Does the Future hold for Earnings?
What “counter measures” have been taken in response to steel and aluminum tariffs and what does the future hold for earnings? Read on to get the full story…
Showdown at the G-7 – Traditionally, the G7 (Group of Seven) Council on Foreign Relations is an amicable meeting between the U.S., Germany, Italy, Japan, the United Kingdom, Canada, and France to discuss common goal issues like international security, energy policy, and global economic governance. The key word there is ‘traditionally.’ The Trump Administration is going off-script and signaled its intent to continue pursuing an aggressive trade agenda instead – which is generally the opposite of the state goals of the G7. Instead of focusing on longer-term impact issues, the immediate focus on the talks will almost certainly be the Trump administration’s decision to reinstate steel and aluminum tariffs on Canada, Mexico, and the EU. Germany and France have already warned that they will not sign a (largely symbolic) joint communique after the G7 meeting if the U.S. does not offer concessions on trade, the Iran nuclear agreement, and the Paris climate accord. The U.S. probably won’t. For investors, the takeaway here is not necessarily the rhetoric and posturing the countries do at the meeting. It’s whether EU and other allied countries tiptoe towards forming an alliance against Trump’s foreign policy actions. As the world’s largest economy and military superpower, the U.S. wields the most power. But our economic vitality relies on warm relations with our allies.1
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Trade Retaliation – on that note, the European Union, Canada, and Mexico have all signaled “counter measures” in response to steel and aluminum tariffs. Canada has announced tariffs to cover some $16 billion (Canadian) in imports on products ranging from whiskey, orange juice, and other food products, while Mexico aims to target steel, pork, apples, grapes, and cheeses. The European Union could target whiskey and Harley Davidson motorcycles. If you’re noticing a peculiar specificity to these items, it’s because they are essentially targeting vulnerable or Republican-held Congressional districts. 2
Is Europe Cooling? – Just as Europe is gearing to defend its economic position with the United States, the region’s economy is starting to show signs of cooling. Recent data from research firm Eurostat shows that Eurozone GDP growth slowed to 2.5% in the first quarter, which while reasonable marks the weakest rate of growth since Q3 2016. On the manufacturing front, Europe continues to show strong signs of expansion but again has displayed signs of cooling off with PMI readings falling to 55.5 in May, its weakest rate of expansion in over a year.3 This data is not to say that Europe is inching towards recession, as the GDP growth and manufacturing data remain sound. But it does suggest that a peak may have been reached, particularly as the European Central Bank prepares to ease and eventually eliminate its bond buying program, beginning this fall. 4
The Future of Earnings? – Warren Buffet and J.P. Morgan CEO Jamie Dimon have teamed up to urge all public companies to abandon the practice of providing quarterly earnings-per-share guidance. The rationale for their plea is that companies have become overwhelmingly focused on short-term profits and shareholder appeasement, which deters from longer term strategy planning involving spending in tech, hiring, and R&D. EPS guidance is crucial for investors and managers in the decision-making process, so in our view, the practice of omitting projections is unlikely to take hold in the near future. But it’s a topic worth watching.5
Another Reason to Take Retirement Planning into Your Own Hands – we often hear of Social Securities’ woes and the massive deficits extant in the program, but this week delivered more stark news about the future of the entitlement program. For the first time since 1982, Social Security will have to tap into it’s nearly $3T trust fund to cover benefits of the program, which is three years earlier than was expected just last year. The collapse of the program is unlikely for baby boomers or those nearing retirement,6 but if you’re under 40 and reading this, consider it another wake up call to take retirement planning firmly into your own hands.
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In this guide, we provide our thoughts on what we believe are 5 of the biggest financial mistakes investors should avoid, while also examining 5 financial habits that we think can help you invest successfully and with confidence. Get your copy today by clicking on the link below:
2 The New York Times, June 5, 2018, https://www.nytimes.com/2018/06/05/us/politics/trump-trade-canada-mexico-nafta.html
3 Seeking Alpha,, June 1, 2018, https://seekingalpha.com/news/3360975-eurozone-factory-growth-15-month-low?ifp=0
4 CNBC, May 31, 2018, https://www.cnbc.com/video/2018/05/31/europes-economic-growth-story-has-rolled-over-a-bit-economist-says.html
5 Reuters, June 6, 2018, https://www.reuters.com/article/us-usa-outlook-buffett/buffett-dimon-say-quarterly-profit-forecasts-harming-economy-wsj-idUSKCN1J30C9
6 The Wall Street Journal, June 5, 2018, https://www.wsj.com/articles/social-security-expected-to-dip-into-its-reserves-this-year-1528223245
7 ZIM may amend or rescind the “5 Investment Do’s and Don’ts” guide for any reason and at ZIM’s discretion.
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