Let me address the elephant in the room before I tackle the healthcare issues. The current market volatility is due in large part to burgeoning signs of an all-out trade war. On March 9, 2018, in an effort to restore an American industry to its previous luster, President Trump garishly imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports. With the tariffs taking effect on March 24 only Canada, Mexico, and South Korea are exempt.
A tariff is a duty or tax placed on certain goods by the government. The design is to make foreign goods costlier giving an advantage to domestic manufacturers of the same products who don’t have to pay the tax.
The tariffs may be a shot in the arm for steel and aluminum companies in the U.S.A, but in the event of increased demand here it may not be that American manufacturers have the capacity to meet a gigantic swell. There are a couple of things that give my friend, Charles Sizemore, CFA, Dent Research and me pause. First, when either of us hears talk of “winning a trade war,” it is our opinion that there are no winners in a trade war. Just losers, as the tax is ultimately passed on to the consumer. It is not unusual for President Trump to make blustering pronouncements one day followed by complete silence the next. In the meantime, do not be surprised to see China use Trump’s new tariffs to its advantage. Markets are not fond of uncertainty.
My second very real concern is suppose the noise of a trade war becomes real news. Sizemore puts it in historical perspective. “The Great Depression didn’t start out as ‘great’. It was a deep but not necessarily extraordinary recession. That is, until Senator Reed Smoot and Representative Will Hawley pushed through the Smoot-Hawley Tariff in 1930, one of the highest and broadest tariffs in U.S. history.” Of course, the intent should sound very familiar, in this case, to breathe new life into the American farming industry that has been struggling for some time. We are not in a trade war yet. So far we are seeing a war of words. But if the tit-for-tat escalates, all bets are off. It’s ‘a terrifically bad idea,’ according to The Economist, March 8, 2018.
Sizemore says he does not “expect a repeat of the 1930’s here.” I say, it’s not about the prediction, it’s all about the preparation. If no one saw the Great Depression coming down the pike, who do you expect you can count on to be your canary in the coal mine in the event Great Depression II is baked into the cake? Please do recognize the DOW lost -89% in 24 months from 1929-32 according to Yahoo Finance. That means what was $1M in 1929 became about $108k in 1932. What’s more, assuming investors did not sell or spend any money, it took about 20 years for the account to fully recover. Do also keep in mind, if you were born 1900 your life expectancy was about 57 years. Which means you may not have had the luxury of time to get back to even before death. Regret is like guilt. They are two gifts that keep on giving.
I believe success leaves clues. Billionaire Mark Cuban said on the one hand he sees stock market swings as a buying opportunity. On the other hand, he said he “decided to hedge” his moves after seeing investors get wiped out, on CNBC, February 13, 2018. Cuban is a busy man with a net worth of $3.7B, according toForbes, April 3, 2018. But, if Cuban isn’t too preoccupied with life to put his hedging strategies in place on his life savings before the grits hit the pan, you and I can make keeping our assets intact the priority it deserves too.
The first reason health care costs keep rising is because we are all getting older. In fact, 10,000 people a day are turning 65 through the mid-2030’s, submits Jeff Hanson, CEO, Griffin-American Healthcare. I asked Harry Dent, Dent Research for his take. Dent said, April 2, 2018, “A reason our healthcare costs about twice as much as it does in other developed countries is because our system is full of B.S. special interests and insurance bureaucracy that adds layers and layers of costs. Every step of this chain of special interests is locked in by decades of lobbying efforts.” Dent went on to say, “There’s no market with less rationality and greater cost disincentives than our very own U.S. healthcare system.”
Dent opined our “perverted, special-interest driven system needs to break down and be re-created from the bottom up.” The job could be done with a “consumer-driven, direct primary care systems that make both doctors and consumers accountable for real service,” asserts Dent. Design health insurance to take care of the more extreme situations so there would not be arcane bureaucracy to the system. Such an arrangement would put an end to the endless incentives to go for the “all you can test buffet,” Dent said.
“More Americans were created during the Great Depression than in any other period,” declared Jonathan Jones at evancarmichael.com. To the extent you keep your assets intact you can take advantage of opportunities that are probably impossible to foresee. A serious downturn may be the perfect time for the health care industry to go through a revolution. The beginning of a new nation in 1776 wasn’t fun, but it changed everything. Change is good.
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