The current trade war between China and the United States represents both a headwind for global economic growth and an overhang in the equity markets. A myriad of factors has driven the U.S. and China to this point, but there are two main issues that the U.S. Government is targeting: its large trade deficit with China, as well as concerns surrounding the transfer of intellectual property, state secrets and technology through espionage.
The U.S. current account balance has been persistently negative since around 1980 as can be seen in Figure 1 below. Given that the current account mainly reflects the balance of trade, it highlights the relative size of net imports when compared with GDP. About half of the current account deficit is with China, while 20% is with the European Union and 10% is with Mexico. The U.S. is able to finance its trade deficit through its Capital Account. It’s able to issue treasury bonds based on its status as the global reserve currency (given that foreign governments and investors alike purchase U.S. Treasuries based on their liquidity and stability). This allows the U.S. Treasury tremendous leeway in financing its large deficits and the additional liquidity required for banking operations.
Figure 1: U.S. Current Account Balance as % of GDP.
This is the fourteenth in a series of independent research produced by the Murray Wealth Group Research Team. The purpose of this series is to provide insight into our portfolio construction and how our research shapes our investment decisions. We welcome any feedback or questions you may have on these monthly commentaries.
This piece is written by our CEO and CIO, Bruce Murray.
While the American stock markets have recently broken through to all-time highs, we continue to see prognosticators fighting for seats atop the ‘Wall of Worry’.
“This is the longest economic expansion in history.”
“We are at full employment; therefore, inflation must be just around the corner.”
“The tariff wars have killed trade.”
On the other hand, Larry Fink of Blackstone believes that the U.S. public is underrepresented in equities despite the solid liquidity of the U.S. consumer.
Antitrust Coming to Big Tech
This is the thirteenth in a series of independent research produced by the Murray Wealth Group Research Team. The purpose of this series is to provide insight into our portfolio construction and how our research shapes our investment decisions. We welcome any feedback or questions you may have on these monthly commentaries.
This piece is written by our Head of Research, Jamie Murray.
On May 31, The Wall Street Journal broke the news of the opening of an investigation into four of the most prominent technology companies: Alphabet, Amazon, Apple, and Facebook. The action is bi-partisan supported and thus ‘big tech’ won’t be able to lean on its friends in Washington for sanctuary. We own positions in all four companies in our Global Growth Portfolio as we are attracted to the technology sector’s appealing fundamentals (secular growth, strong margins, low capex/high cash flow). As owners, we are keenly interested in gauging the likely outcome of each company’s investigation and determining the risks and opportunities available.
Jamie Murray, Portfolio Manager and Head of Research at The Murray Wealth Group, takes viewer questions on North American equities on BNN Market Call Tonight (July 8th 2019).
Watch him discuss company outlooks such as Disney, Google, Royal Caribbean Cruise Lines and more!