French Move Pisses Off the Donald And…


Tut tut. Those pesky Frenchies have really irritated the Donald now.

France is moving to put a revenue tax on the American tech giants. Trump is threatening tariffs as a middle finger response.

We’ll leave the diplomacy to those in power and deduce the following: This is all part of the FAANG pushback I’ve been warning about since April.

The US market won’t be too happy about this either. It will be pricing this further downside risk in.  

The fate of Google, Facebook and Apple may not immediately strike you as important.

But these firms drove US stocks into their epic bull market over the last 10 years. They may be the thing that ends it, too…

Let’s not forget that France is not alone here.

Both the UK and New Zealand are on the case as well. And Australia won’t be dilly dallying for too much longer either, by the looks of it.

We don’t need to debate the merits of such a tax, except to say that anything that lowers the earnings of the stocks could lower their price or outlook as well.

We can say that about the short term, but not necessarily the long term. All these businesses do have further potential growth. It’s a matter of timing.

But any question of the long term also invites the question of whether the companies will exist as they do today.

There are plenty of calls within the United States to break them up.

2020: Shaping up as a doozy

This is why one would think the markets will keenly follow the Democratic nomination race for the next run at the White House.

One of the contenders, Elizabeth Warren, has an antitrust policy ready to go!

It’s certainly shaping up to make 2020 one hell of an interesting year. The general international perception of Trump reminds me of the years of George W. Bush a touch.

Where before we saw a bumbling idiot, now we see a narcissistic bully. But both still played okay to the crowd at home.

Trump claims credit for any positive jobs report or lift in US stocks. He blames any weakness on the interest rate policy of the Fed or other countries ripping off America.

One wonders who he will blame for America’s gargantuan budget deficits.

Bloomberg reports that the US budget deficit has widened 23% in the first nine months of the US fiscal year. When the budget is as big as America’s, that’s US$747 billion.

Yep, you guessed it. Trump’s tax cuts are now showing up in red ink on the government side.

That’s another problem the US market may wrangle with shortly because the US is about to hit its federal debt limit, possibly by September.

We saw a US government shutdown at the start of the year, you might recall.

This is not a habit we want the White House to get into.

It injects uncertainty into the market and crimps growth because federal employees and departments start losing access to wages and spending money.

Hmmm. What am I saying? It suggests that the recent highs in the US stock market may not hold.

The market has now priced in a cut from the Fed…but to really keep powering higher, there needs to be improving fundamentals, too. The case is mixed on that front.

What does this mean for you and me? I think we’re in a stockpicker’s market.

Changing winds, changing strategy

You can’t rely on the main indexes to do the heavy lifting for you to make a decent buck from here.

Australia, for example, has already seen an epic run since the start of the year. Some sort of pause or retrace around now would not surprise me in the slightest.

But please don’t let me lead you astray.

I’m talking about the index here. This is what you get exposure too when you hold a broad ETF or managed fund on the market.

However, there are individual stocks flying up all over the place.

But you don’t see these moves in your daily paper or the nightly news. They are simply not big enough to rate a mention.

They are certainly not large enough to help lift the index. Only the heavyweights can really do that.

This is where the advantage lies. Stocks at the lower end of the market don’t receive wide coverage, in the media or from brokers.

That allows them to be mispriced and provides an edge you can try to exploit. See what I’m talking about here.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch