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Monday, May 21, 2018

Fair Trade -The Good War That Wasn’t

In a vocal response to President Trump’s trade diplomacy media outlets have been rife with fears of trade war with China and other global markets. In spite of the doom and gloom forecast by media mavens, the market’s tech sector rallied this morning rising 300 points to put the DOW at 25,000 [1]. The trade war predicted by major media outlets has been put on hold as cooler heads prevail among both Chinese and US negotiators. Agreements have been reached on US agricultural products (and other sectors). President Trump was correct in observing the gross imbalance of trade with China conceding the fault was US based. Prior US administrations have failed to effectively represent US trade interests in the past. The tough Chinese negotiating position was anticipated but was surprisingly tempered when President Trump acknowledged the difficult situation facing Chinese based telecom ZTE.  ZTE has been in the news for violating trade sanctions by shipping technology products to Iran and North Korea. The violation of sanctions resulted in a hefty fine for ZTE but the alleged theft of US intellectual property was also exacerbated by potential network/back door security concerns. 

In a surprise negotiating position, President Trump conceded that the punitive moves placed an extraordinary financial hardship on ZTE, jeopardized the employment of thousands there and threatened ZTE’s viability as a major player in the Chinese technology landscape. Perhaps the Chinese negotiators recognized President Trump’s position; that threats to large scale employment for either the US or China should be avoided. Potential remedies to the ZTE dilemma might include a change in ZTE management and restored access to critical US components with provisions to safeguard intellectual property and resolve network security concerns. With no solution finalized, the ZTE scenario exemplifies the challenges our semiconductor and semi equipment industry will face as Chinese ambitions expand to include a larger scale semiconductor manufacturing economy.

In spite of the constructive overture to ZTE and the Chinese, an unrelenting discussion of President Trump’s trade tactics consumed the weekend.  In a recent discussion on CNBC, many traders expressed their objection to a Trump imposed trade war encompassing a spectrum of consumer and industrial products. Most predicted conflict in the world markets as tariffs are discussed during trade negotiations. I cheered and waved a thumbs up at my TV screen as veteran CNBC commentator Rick Santelli [2] correctly defended President Trump’s position by noting that previous administrations had conceded the trade war years ago and had lost. President Trump is now picking up the pieces, negotiating from the ground up and creating a viable trade platform from which we might establish a fair and equitable balance of international trade.

Comprehensive trade negotiations with China (and the rest of the world) will take time. Preconditioned to operate from an IP Free trade zone (no Intellectual Property protection) without concerns for trade inequities, kleptocrats the world over must accept the new reality of US trade policies. US based corporations and politicians might defer trade discussions as President Trump and his administration do the heavy lifting and negotiate for our economic well being.

In a new world of balanced trade policy US companies should be bolstered by effective new standards protecting intellectual property and best business practices.


Best regards,
Thomas D. Jay

Semiconductor Industry Consultant
Thomas.Dale.Jay@gmail.com
https://ThomasDaleJay.blogspot.com
Thomas D. Jay YouTube Channel

Thomas D. Jay is a member of SPIE and IEEE





Corporate, private entities or publications referenced or linked in this article are the respective owners of their logos, trademarks, service marks, media content and intellectual property. Unless otherwise disclosed, Thomas D. Jay has no financial interest in companies referenced in blog articles or other published media communications. Thomas D. Jay is not a registered financial advisor. No representation is made to either buy or sell securities. Opinions expressed by Thomas D. Jay are his own. Thomas D. Jay does not employ or otherwise utilize/authorize third party agents to express his opinions, represent his interests or conduct business on his behalf except where formally contractually designated. Thomas D. Jay does not agree to indemnify or hold harmless vendors, clients or third parties to related contractual agreements and reserves the right to applicable legal remedies in lieu of arbitration. These terms are subject to change. Concerned parties should check this blog site for periodic updates.



References and acknowledgements:

[1] CNBC News

[2] CNBC News Rick Santelli comments (paraphrased)

Tuesday, May 15, 2018

May 15, 2018 - What’s Happening With The US Economy an Update


After President Trump took office economists and market watchers observed the stock market make a steady climb upward. Many pundits were critical of the fanfare as fundamental economic indicators seemed positive but had not yet shown sustained upward momentum. A key economic indicator I’ve been tracking has recently demonstrated three consecutive quarters of upward momentum. The Federal Reserve’s Economic Data as tracked by the Federal Reserve Bank of St. Louis (FRED) regularly reports on the M2 Money supply of US Dollars as well as its velocity.

As defined by FRED:

“ [1]The velocity of money is the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. The frequency of currency exchange can be used to determine the velocity of a given component of the money supply, providing some insight into whether consumers and businesses are saving or spending their money. There are several components of the money supply,: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest. Consider M1, the narrowest component. M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short term consumption transactions are taking place. We can think of shorter term transactions as consumption we might make on an everyday basis. The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.”

Source: Federal Reserve Bank of St. Louis, Velocity of M2 Money Stock [M2V], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M2V, November 8, 2016.

On November 6, 2016, I reviewed the FRED M2 Velocity graph which illustrated a sustained and worrysome downward trend (see my previous blog post from November 6, 2016).

https://thomasdalejay.blogspot.com/2016/11/pre-election-special-whats-really.html

That year we continued to see news stories about Wall Street gains along with monthly cheers for small, incremental increases in the employment rate while still puzzling over our economic stagnation. The Obama administration had ceased the larger publication of the complete scale of unemployment data publishing only the U3 component (although table A15 citing tables U1–U6 is still published). With almost 10% of our nation unemployed we had a serious problem. Then Federal Reserve Chair Janet Yellen correctly observed and reported the unemployment dilemma immediately after taking office. As the inflation rate was in single digits, Yellen continued economic stimulus of the M2 money supply but was reluctant to raise interest rates for fear of stalling the M2 velocity further and crashing our still fragile consumer economy. Obama Care and regulatory policies had crippled the US economy, placing greater financial burdens on employers and individuals by discouraging the hire of new, full time employees.

The current May 15, 2018 Federal Reserve Bank of St. Louis, Velocity of M2 Money Stock chart is displayed below. Note the recovery since Q2 2017 and sustained upward trajectory of the M2 velocity through Q1 2018. Although data can be collected and displayed rapidly many factors reported by FRED are trends reflecting time constants inherent in a complex economy. Improvement in economic trend lines as expressed by consumer spending can sometimes manifest itself in a slow upward ramp as a large population builds its confidence in market conditions over time.


The May 2018 Federal Reserve M2 Velocity Chart Shows 3 Consecutive Quarters of Growth











Jerome H. Powell was sworn in as Federal Reserve Chairman on February 5, 2018. Appointed by President Trump he succeeds Janet Yellon. As the economy improves Chairman Powell has resumed Yellon’s watch on interest rates as spending increases and business expands.

Three major factors restored the M2 velocity and broader economic trends:

1. The Obama Care tax penalty mandate was recently recinded by congress (tax penalties for those who couldn’t afford the premium payments).

2. President Trump’s tax cut passed by congress was a major boon to employers resulting in large scale bonuses and wage hikes for many hourly employees.

3. President Trump removed many of the regulations imposed on business during the Obama years. The coal industry was almost completely destroyed by zealous regulators who championed solar power as an alternative rather than complementary asset to our traditional coal energy resources.

President Trump continues to champion US business by addressing unfair trade deficit issues with the international community. In addition, President Trump plans to pursue additional tax cuts which should further stimulate the economy. The repatriation of $Trillions in US business cash assets from overseas banks and the return of outsourced manufacturing to the US mainland should help sustain US job growth.

A final note: After years of trending downward I saw the M2 Velocity move upward for the first time a few months ago and was eager to report the news. As a former trader on the NYSE and NASDAQ and as a career semiconductor industry executive/strategist, caution tempered my enthusiasm. It seemed prudent to observe a few quarters of sustained upward momentum before reporting what I consider to be a significant inflection point in the US economy.

I add my voice to the many who have already declared our economy is experiencing real recovery which should sustain itself throughout President Trumps term of office and influence.

Best regards,

Thomas D. Jay

Semiconductor Industry Consultant
Thomas.Dale.Jay@gmail.com
https://ThomasDaleJay.blogspot.com
Thomas D. Jay YouTube Channel

Thomas D. Jay is a member of SPIE and IEEE





Corporate, private entities or publications referenced or linked in this article are the respective owners of their logos, trademarks, service marks, media content and intellectual property. Unless otherwise disclosed, Thomas D. Jay has no financial interest in companies referenced in blog articles or other published media communications. Thomas D. Jay is not a registered financial advisor. No representation is made to either buy or sell securities. Opinions expressed by Thomas D. Jay are his own. Thomas D. Jay does not employ or otherwise utilize/authorize third party agents to express his opinions, represent his interests or conduct business on his behalf except where formally contractually designated. Thomas D. Jay does not agree to indemnify or hold harmless vendors, clients or third parties to related contractual agreements and reserves the right to applicable legal remedies in lieu of arbitration. These terms are subject to change. Concerned parties should check this blog site for periodic updates.


References and acknowledgements:

[1] Federal Reserve Bank of St. Louis, Velocity of M2 Money Stock [M2V], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M2V

[2] Thomas D. Jay blog post November 6, 2016  https://thomasdalejay.blogspot.com/2016/11/pre-election-special-whats-really.html
[3]  US Bureau of Labor Statistics web site

although table A15 citing tables U1–U6 is still published

[4] Federal Reserve Bank of St. Louis
https://fred.stlouisfed.org/graph/?id=M2V,#0

[5] Jerome H. Powell
https://www.federalreserve.gov/newsevents/pressreleases/other20180205a.htm