I filed a longer column called “Five tips for investing through a trade war“ this week using an in-depth report by Merrill Lynch quantitative strategist Savita Subramanian. Ms. Subramanian argued that one of the primary risks of a trade war was declining corporate profit margins. Trade restrictions increase production costs, the effects of potential tariffs on Mexico on the cost of building cars is a good example, and companies make less money for every unit sold.
As part of this research report, Ms. Subramanian made an observation that stopped me cold, but I wasn’t able to shoehorn it into the column,
“Globalization has peaked. Merrill lynch research expects the rise of dual supply chains; one in the China/the east, one in the U.S./the west … The need to protect and secure U.S. infrastructure (electrical grid, air traffic control, etc.) also supports bringing the supply chain back to the U.S.”
Wait, what? I’m only starting to get my head around the implications of this scenario. In geopolitical terms this arrangement sounds far too Cold War-ish for my comfort. Two, largely separate global economic blocks is not good news for investors generally in light of Merrill Lynch’s observations on profit margins.
The Canadian economy and equity market have historically tracked global trade volumes closely, so more large nations closing foreign operations and investing in domestic production is likely not good for domestic portfolios either.
The fall of the Berlin wall kicked off a period of globalization that, while not without significant downsides for developed world wage growth, lifted hundreds of millions of people out of subsistence level poverty. I was hoping some inequality-related adjustments could be made but it looks like a much bigger and more tense change could be on the horizon.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Drone Delivery Canada Corp. (FLT-X). Shares of Drone Delivery Canada Corp. surged as much as 18 per cent in trading Tuesday after the company announced a 10-year contract with Air Canada that sees the cargo division of the country’s largest airline market and sell the Toronto-based company’s drone-delivery services in Canada. Some analysts said the deal is a boost of confidence for the company’s technology, but other analysts want to see revenue first from this startup before they invest further. Brenda Bouw reports.
Nervous about the markets? These low-volatility funds are worth considering
Investors are nervous, and they should be. Growth forecasts are being scaled back as the U.S.-China trade war drags on. The bond yield curve has inverted for the second time this year, a warning of trouble ahead. Now U.S. President Donald Trump is threatening to hit Mexico with escalating tariffs if its government doesn’t stop the northward migration of Central Americans. Against that background, it’s no surprise that markets have been sliding for several weeks. Investors are again searching for safe havens. Gordon Pape takes a look at several low volatility funds worth a look. (For subscribers).
The hammer of high interest rates may never drop on struggling borrowers
What was supposed to be a march back to normalcy for interest rates began just about two years ago. Rates did grind a fair bit higher in the ensuing months, but we’re still nowhere near what would have been considered normal levels prior to the last recession. Now, it’s looking like rates are at or close to their peak for this economic cycle. Don’t celebrate quite yet, borrowers of the nation. Financial markets are expressing a distinctly pessimistic view of what’s ahead for the economy. Job security, hours worked and raises and bonuses could be at risk in a slowdown. For borrowers, that’s potentially as dangerous as higher rates. Rob Carrick takes a look (for subscribers).
Why I’m buying more of this dividend-growing bank
John Heinzl’s model Yield Hog Dividend Growth Portfolio has done well and has some cash to spend. He explains which company he’s adding more of and why (for subscribers).
Personal stability can help you take riskier investments
Moshe Milevsky is a finance professor at the Schulich School of Business at York University in Toronto. He also has an equity portion in his portfolio that is more than 100 per cent with the help of using margin and leverage. The Globe and Mail recently interviewed Dr. Milevsky, 52, about his money strategies. Larry MacDonald explains (for subscribers).
Others (for subscribers)
Others (for everyone)
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What’s up in the days ahead
David Berman looks at forestry stocks and Ian McGugan ponders moves in the bond and stock market.
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Compiled by Gillian Livingston