WHAT HAPPENED THIS WEEK?

⚡️ Fast Facts ⚡️

👋📬 FedEx (FDX) didn’t renew its U.S. air-delivery contract with Amazon (AMZN) citing that their new focus will be on “serving the broader e-commerce market” in which US package volume from online shopping is expected to double by 2026.

🛩 Boeing Co (BA) knew about a defective warning light on its 737 MAX jetliner since 2017but decided to defer fixing it until 2020. Since that deferral 346 people have died in 737 MAX crashes and Boeing’s stock has tumbled over 20% since 737’s were grounded globally.

🍔🌭 Kraft Heinz’s (KHC) restated financial reports for ~3 years are expected to be released July 31. Their stock has plummeted 33% since they announced their financial reporting blunder and wow, is there a good opportunity to make a pun questioning whether the stock will ketchup to their competitors.

🗯 Chinese President Xi Jinping joined his Russian counterpart Vladimir Putin in lashing out at U.S. global dominance, highlighting the importance for globalization and battle hegemonism.

🛢 Oil entered a bear market on Wednesday as it dropped more than 20% 📉 from its April, however, prices rebounded slightly when Saudi Arabia and Russia reiterated their commitment to supply cuts.

😟 Investors are starting to worry as the treasury yield curve has grown inverted, a sign that has heralded recessions in the past. Additionally, traders expect ~70 basis points of easing by the end of 2019, unwinding 3 of last year’s 4 rate hikes.

⚠️ The Worst is Yet To Come? ⚠️

This week’s release of May payroll figures posted a four-month average jobs gain of 127,000 which is the slowest since 2012 and stands in stark contrast to the 201,000 average of Trump’s first two years as president.

What’s worse? 

An escalating trade war threatens further deterioration of the employment market and represents a lose-lose scenario where both China and the US will continue to suffer.

Live footage of Xi Jinping and President Trump escalating their tariff war against each other.

Manufacturing saw an addition of 3,000 jobs in the past 4 months which is the worst in Trump’s presidency – a presidency won on the campaign of pledging to revive America’s factories. Furthermore, the job market saw strains in service industry jobs, health care, and retail, which are much more worrying.

One could expect the goods-producing industries would suffer, because they’re on the front-lines of the trade war, but the trickle down effect the trade war is rapidly becoming cause for concern as we enter the later periods of growth in the current global economic cycle.

This 4-month period also posted the slowest wage gains since September which is a key component for the Fed to consider as they evaluate action with the Federal Funds Rate as they debate a rate cut to spur investment.

Not So Fast… What About My Tax Break?

So many out there are probably thinking… Yeah, President Trump is conducting a trade war with China and maybe some prices will go up, but I got a tax break that covers those price increases so all will be good.

Unfortunately, that’s only what they want you to think.

Here’s how the math works: 

According to the Urban-Brookings Tax Policy Center, middle earners got an average tax cut of $930 for the tax overhaul passed in late 2017, however, according to the New York Federal Reserve, tariffs already in effect cost the average household about $831.

Hey! That’s still $100 bucks right??

Well, when you add in the additional tariffs on another $300 billion in Chinese goods that Trump proposed and has considered since May, the tariff burden on the average family of 4 will grow to about $2,294 annually.

Trump has also threatened to levy tariffs on all imports from Mexico, starting with a 5% tax beginning as soon as Monday that would increase monthly to 25% in October unless Mexico curbs illegal migration to the president’s satisfaction.

If the tariffs reach these even higher levels, economists forecast that the annual cost to households would increase by $1,700.

🤔 Let’s Put On Our Thinking Caps 🧠

So, $930 in tax breaks, minus $2,294 in Chinese tariffs, minus $1,700 in Mexican tariffs….

We’re no experts, but isn’t that the type of math that allowed our President in Chief to file Chapter 11 Bankruptcy 6 times?

Long story short: Tariffs hurt consumers and reduce economic efficiency

While there are valid reasons for conducting a trade war with China, including protecting US intellectual property, increasing access to Chinese markets, and attempting to reduce our trade imbalance, don’t be fooled into thinking China is paying the US.

You and I are paying, and it will be interesting to see how long consumers will be willing and able to sustain the price increases given our dependence on Chinese goods.