It’s Not Just Tariffs

On this morning’s Trey Ware Show, Karl & Trey discussed the tariffs and the effect on the economy and the stock market.  

Trey Ware:                         Let’s go to Karl Eggerss from eggersscapital.com joining me on the Stevens Roofing Newsmaker Hotline to talk about the economy and these tariffs with now Mexico. Hey Karl. Good morning.

Karl Eggerss:                      Good Morning Trey. You are, we’re talking about the gasoline coming down. That’s one benefit of what’s going on right now. Oil prices have been plummeting lately and so we will continue to see gas prices come down over the next few weeks which is good as we’re in summer driving season. But on the tariff side, yeah, it’s interesting because Mexico stands to benefit greatly with what’s going on with China. And I think they still will and I think the U.S. knows that and the U.S. wants to have a deal with them. Having said that, President Trump is obviously saying, “You know what, I’m going to use these tariffs for more than just trade. I’m going to use them for anything I can see that’s negative with the country, I’m going to go ahead and use tariffs because that,” he believes that’s his best weapon.

Trey Ware:                         With the ultimate goal of trying to bring those jobs and those manufacturing companies back to the United States, right?

Karl Eggerss:                      Yeah that’s the ultimate goal. However, having said that, that may work in the long term. In the short term, it’s going to affect our GDP, which is our country’s growth, not only ours, but around the world. You’re already starting to see that. The main reason the stock market’s going down in the last few weeks here is, yes, we have a trade war going on, but it’s the impact that that’s going to have on the economy and you’re starting to see an economy that we’ve been calling good but not great, which is vulnerable and if it’s vulnerable, it doesn’t take much to all of a sudden knock it down a little bit and that’s why the stock market’s been going down.

Trey Ware:                         So these guys have been looking at this and they’ve been thinking, okay, well more tariffs means what? Less productivity or less profit for these businesses and so that’s why you’re seeing it go down? Why exactly is the effect of the tariffs or what exactly is the effect of the tariffs on the stock market?

Karl Eggerss:                      Well if you’re a business owner, and I’m not talking about just necessarily somebody local, but if you’re a CEO of a conglomerate, what are the rules of the game right now? What does, what is this going to look like a year from now? Where do you do your manufacturing? Do you need to start moving that? That’s a very slow motion train. This is like the titanic. And if you don’t know what to do, you’re going to start hoarding cash. You’re going to start postponing decisions that need to be made and you may start postponing hiring and all those things will trickle down to the bottom line. And the bottom line is what makes a stock market ultimately go up or down?

Trey Ware:                         So what are you telling people right now? What are you advising people to do or not do?

Karl Eggerss:                      Well there’s nothing in the big picture that would say change your overall allocation, you’re not, of course everybody’s is different but having said that, this is still very headline risk [esk 00:02:41]. And we saw that a few weeks ago, one tweet, we could be back at new highs, right? And we’re still seeing progress. China, even though they’re talking tough, they still want to come to the negotiating table. Same thing with Mexico. Mexico’s response was very interesting, not argumentative at all, but basically saying, “Yeah, we need to have a dialogue.”

Karl Eggerss:                      So ultimately I still think this gets resolved, but the longer it goes on, the longer that you have some of these CEOs as I’m talking about making decisions that could affect their business. So ultimately you don’t do a lot right now. I will say though, interestingly last week that foreign stocks and commodities and gold and all types of things like that actually were working. So this is a great example of pure diversification 101. If you are diversified, not just in U.S. stocks, you had an okay week last week. Whereas if you’re concentrated in U.S. stocks, which have been doing the best the last several years, then you had a pretty rough week and you know for the month of May we saw the stock market down anywhere from five to six and a half percent.

Trey Ware:                         Yeah. What is good though and what is refreshing though is to see a politician actually put our country first instead of the world economy first, which all the others had been doing for at least a generation or two. To actually have a president or a politician who is saying, “Well, we’re going to take care of the U.S. economy first and if we do that, everything else is gonna play out the right way.”

Trey Ware:                         Now we can argue over whether or not tariffs are the right way to do this or cutting off, I believe cutting off foreign aid is another great way of doing it. Taxing the remittances that leave this country and go back to Mexico every year at billions of dollars every year, I think those are the kinds of things that can be done to affect a change within Mexico rather quickly. But regardless of what the method is, we have a president now who’s not a globalist. He is definitely wanting to take care of the United States, and that is a great, refreshing change to put our economy first, our investors first, and our workers first.

Trey Ware:                         Karl, thank you very much. Karl Eggerss every Monday at this time on KTSA until the 17th when we kick off the new format and he’ll be joining me at 6:50 beginning the 17th. 

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