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Trump’s Trade War

Stocks go up when China and Trump say or do something nice to each other and then stocks fall when they leave meetings early, don’t meet, or say something mean.

It is a tiresome game that has been going on for some time. It seems like China and Trump are fundamentally at odds with each other and any real trade agreement is impossible.

I think the best thing Trump could do (if I was his campaign adviser) is declare victory, focus on and inflate some arbitrary thing he got from the trade war and then promise no more tariffs.

The United States benefits much more than China from trade between the two countries. China loans money to the US then the US buys cheap goods from China with said money. China gets pieces of paper (or the electronic equivalent) saying the US will pay them back. It is the ultimate vendor financing.

The Fed Caves to Trump

Despite low unemployment numbers, “contained” inflation the stock market near all time highs and all the other supposed reasons why the economy is the best ever, the “independent” United States Federal Reserve cut rates last week. The Fed funds rate is now back down to 1.75-2.00% because of….reasons?

This was all but assured as far as the market was concerned.


But this of course was not enough for Trump.

The market has been going up, up, up for the past ten years. The Fed is cutting rates when the economy is supposed to be doing well, when the next downturn hits, what is the Federal Reserve going to do?

The market is moving based on what Trump tweets (and China replies) and what the fed funds rate is.

Between the trade wars and the federal reserve, can we please stop pretending that the United States is a free market economy? Please?

Netflix Tanks

Netflix (NFLX) has been getting pounded.

Netflix doesn’t make money. Since 2011 they have lost money each year and they have to keep borrowing more money just to keep making content.

One of my key metrics in evaluation stock is free cash flow. It’s like earnings only harder for accountants to monkey with. Netflix has not had positive free cash flow since 2011.

Looking back three years free cash flow at Netflix was a negative $1.66 billion in in 2016, negative $2.01 billion in free cash flow in 2017, negative $2.89 billion in free cash flow in 2018 and are on track to lose over $3 billion this year.

Netflix is a classic example of great product, lousy business. It looks like the market is finally waking up to the fact that Netflix is not a good investment.

With more competition from the likes of Apple and Disney, I don’t expect this show to have a happy ending for Netflix.

What is John Doing?

I’m well positioned for what the market has been doing. Of course I missed out on some of the meteoric rise over the past 10 years, but it is good to finally see my positioning pay off.

I’ve been raising cash all year and sitting on gold holdings. I am in the market some, but I’m certainly overweight cash. I did start shorting Netflix when it was about $325.

I still like gold (and silver), gold stocks and value-oriented international stocks. I still think it’s important to be invested in the US some, but not a lot.

I think Netflix is still overvalued even after the large selloff and I think it will go down to the $150 range (or lower) over the coming couple of years. I only short with money I can afford to lose because it is risky and tough.

Shorting is harder than going long because you have to get both the direction and timing correct. If you’re long you only have to get the direction right (although timing is nice here too).

I don’t recommend shorting Netflix or any other stock.

I’m not worrying. Economic downturns don’t happen immediately. They are gradual, the market springs back even in the midst of selloffs. Take some prudent steps to diversify outside of mainstream investments and don’t worry about it. Build up an emergency fund, live within your means and live your life.

Of course there are some easy to implement alternatives as well.