Protectionism in a World of Globalism/Opportunities

Trader Scott’s Market Blog

January 23, 2017

There is much consternation about President Trump’s “anti-free trade” views and rightfully so. The “free trade agreements” like NAFTA and GATT are anything but free trade. However they are what the world order is today, the “New World Order” so to speak. If you’re a libertian economically, like myself, you will be for true free trade. But there is no such thing now, and there hasn’t been for a long time, it’s all managed trade. So anyone coming in wanting to shake things up and hurt the status quo, is going to cause serious side effects. I have no problem dumping all these stupid agreements, but we can’t have rose-colored glasses about the short-intermediate term consequences. These consequences are not being considered seriously enough, as to all of the unexpected effects of upending the 8o+ year old plans/desires of the globalists to push “free trade” on every man, woman, and child on this Planet. Globalism at this point is a very intricate, integrated system, and it’s purely about control. Globalists do not want each nation, and its’ citizens, to be in control of their/our destinies. They want to control everything we do, see, hear, eat, drink, listen to, think about, purchase, etc. So Donald Trump coming in has freaked the globalists out. But President Trump has his own agenda about trade, and once again it’s not about freedom. He’s seriously fudging the numbers about how many jobs are coming back to the US. Many of the announced jobs coming back have been planned for years. And many of the announced jobs are just that – announced – they may never actually show up. While some of his rhetoric has claimed Ford will not proceed with plans to build a plant in Mexico after all. That’s false, and hopefully it’s not an outright lie – Ford just switched plans within Mexico itself. So the President wants to be in control of how trade in goods and services flows/operates. Maybe it’s better (or not), but it certainly isn’t about freedom. However it is what it is, and we’ve lost so many freedoms at this point, who’s counting anymore.

There’s a CNBC article from last week, and if you ignore the stupid comments from Larry Summers (recent post), it’s a good read. The US is the world’s biggest importing country and the second biggest exporter. There are going to be all kinds of unintended consequences with shaking up the “free trade” agenda. Even south of the border, as the Mexican Peso continues its’ decades long fall against the $US, this is having unintended consequences. Companies are looking at Mexico more favorably than the US as far as where to build a new production facility. And they may even be willing to pay the Trump “border tax” (tariff) in lieu of moving production here to the US. But then there’s the other part of Mexico specifically, regarding the bearishness. We’ve all heard by now Donald Trump claiming he’s the master negotiator, so from here forward, I’ll view him in terms of everything is a negotiation. It does seem like he loves his country, and will be kindly disposed towards both Canada and Mexico. (Although many Spanish speaking people won’t be too happy about this.) Why would he want to purposely harm our two closest neighbors, with whom we have great relationships? Mexico is part of the other side of the “Trump trade”, meaning the side which has been hit with a unanimity of bearishness. The list includes gold and Treasuries. And in the comments section from 1/19 in this post, the list also includes:

“There are other things bigger picture to focus on – ags, solar, biotech when it shakes out some more people, and from a subscriber, Mexico is interesting. I have no position there yet, and may not, but it’s quite interesting – the setup.”

This trade idea from a subscriber was well planned, both entry and exit, and he has a good trade going. There has been alot of assumptions being made about President Trump’s policies, which have been reflected in markets. The US$ and the stock market have been sure bets according to the analysts, while these other markets need to be avoided. There’s a post here about Inaugurations and the stock market. As for the $, it is doing a good job of wringing out the ridiculous newfound bullishness, supposedly because of Trump, right into the big resistance zone into the highs. And the currency situation is part of the problem with investing in Mexico. The Peso has been a big drag on the Mexican ETFs and closed end funds relative to the Mexican Bolsa itself.  You can see the great performance of the Bolsa in Peso terms. The Mexico Fund (MXF) has been around a long time, and it has been a lousy performer for a long time, much of it due to the currency. And as a closed end fund it usually trades at a premium or a discount to NAV. It is currently at about an 11% discount, which sounds like a bargain, but it has been trading at a big discount for a long time. The average discount over the last 3 years is about 6%. But these are the things which make Mexico interesting – the bearishness about the currency and the assumption that Trump is bad for Mexico. It is not a reason in itself to buy, but it is a reason to investigate the situation for an opportunity to go against the consensus. And the currency drag could become a currency boost. There is a currency hedged ETF for Mexico (HEWW), but it’s very illiquid.