Friday File: Annual Review pt. 2, FANG and TOAST

By Travis Johnson, Stock Gumshoe, January 18, 2019


The “Trade War” is getting real, and the higher prices imposed by governments in China and the US. Tariffs are just import taxes, paid eventually by the customer, so they raise prices… which, our economist friends will tell us, suppresses demand… and since the higher price is going to a tax, not to a company, there isn’t a commensurate profit increase to go along with the falling demand, and it’s bad for pretty much everyone.

So we’re seeing more “real” stories about that these days, which is almost certainly going to impact the sentiment of business leaders who are deciding how big to make their orders, and when to place them, and whether to try to push into new lines of business right now (Japan’s motor maker Nidec, for example, cut its profit outlook by 25% because of an “unprecedented demand fall” for their parts, which go into stuff like appliances and electronics and cars — that’s just an anecdote, but absent a big sentiment shift it’s possible that piles of anecdotes eventually become data and a trend as everyone reads what their competitors are doing… the first wave has been the tightly watched consumer products and semiconductor stocks, most visibly Apple and TSMC and HonHai/FoxConn in recent weeks, all of which are indicating that demand is falling off quickly).

That will continue to suppress economic activity, probably only a little bit at first, but as we combine it with political uncertainty everywhere (including Brexit and the US government shutdown,