Canada caves, NAFTA dies, USMCA replaces it, Wall Street soars
WASHINGTON. Sunday night, as close as you could get to D-Day for concluding a new US-Mexico-Canada trade agreement, Canada finally caved on at least one key issue involving outrageous protections long in place for its dairy industry. Hence, our portmanteau headline: Canada caves, NAFTA dies, USMCA replaces it. And, as a consequence, Wall Street blasted off to the upside at Monday morning’s opening bell.
President Trump announced this last-minute trade breakthrough with Canada late Sunday night. Stock market futures soared almost immediately after the announcement, essentially predicting an incoming Monday morning rally.
Wall Street Soars
As of the noon hour Monday, the Dow Jones Industrials have gained 277 points (up 1.04 percent) to stand at approximately 26,750. The broader-based S&P 500 stands at 2932.48, up 18.43 points for a 0.63 percent gain. And the tech-heavy NASDAQ is gaining 29.8, up 0.37 percent on the day to stand at 8076.61.
These numbers will obviously change before the Monday’s closing bell. But most of today’s gains are likely to hold, unless something bizarre hits the wires to turn this substantial rally in a different direction.
Details on the new agreement follow, but there are undoubtedly more to come. Is this too much winning for all Americans, or what?
The following snippet via Politico.
“The new pact, which is being called the U.S.-Mexico-Canada Agreement [USMCA], is a major step toward completing one of Trump’s signature campaign promises and gives the president a concrete policy win to tout on the campaign trail this fall. It also sets the stage for what is sure to be a high-stakes fight to get the agreement passed by Congress before it can become law.”
Politico, of course, has to engineer its story to focus on an upcoming “high stakes fight” with Congress, which, Obama-Iran aside, must ratify any big agreement – essentially a treaty – like this one. But make no mistake: This agreement is a real breakthrough. But most Democrats won’t like it, because Trump.
The National Sentinel has a more positive take on this.
“The new deal is called the U.S.-Mexico-Canada Agreement, and it is a major win for POTUS Donald Trump who campaigned on fixing ‘horrible trade deals’ that he (and millions of Americans) rightfully see as one-sided and detrimental to the U.S.
“Now all that’s left is getting an often recalcitrant Congress to fall in line; lawmakers have to approve the new agreement before it becomes enshrined in law as a treaty.”
Hat tip to Whatfinger for this link.
NAFTA dies and new and improved USMCA replaces it
Fox News provides two key details: re-tooled auto trade practices and at least a partial end to Canada’s outrageous protections for its dairy industry.
“The U.S. and Canada on Sunday announced that the two nations and Mexico had reached a deal to revamp the North American Free Trade Agreement, that would allow access to Canada’s dairy market and protect Canada from potential U.S. auto tariffs. The new pact would be renamed the United State-Mexico-Canada Agreement…
“Along with other components, the new deal will also benefit the U.S., Canadian and Mexico’s auto industries.”
Of the new agreement, U.S. Commerce Secretary Wilbur Ross had this to say to Fox:
“‘I think it clearly vindicates President Trump’s trade policies because this is fundamental reform,’ Ross said. ‘Now, there’s no more NAFTA, there’s USMCA. So R.I.P NAFTA.”
In other words, Canada caves, at last, on the dairy and auto issues it allegedly refused to discuss. Go figure? Maybe because an American president looked out for American interests for the first time in decades?
So now NAFTA dies. Long live the USMCA. At least after Congress fiddles with it after a few months and then ratifies it.
A partial end to Canada’s insane dairy industry protectionism
Fox drills down further on the new treaty’s dairy and auto industry improvements via an interview with Commerce Secretary Wilbur Ross.
“According to Ross the new deal eliminates the controversial Class 7 dairy policy that Canada created to boost domestic butter by raising the price for milk.
“‘It’s quite huge,’ Ross told Maria Bartiromo on ‘Mornings with Maria.’ ‘We were already selling some $600 million a year of dairy product up there but the infamous Class 6 and Class 7, which [provoked] the big outcry last year, particularly when the president was out in Wisconsin, those classes are being gradually done away with.’
“In addition, Ross said that there will be higher quotas on cheeses, poultry and eggs.…
“Ross said he expects the deal to be signed within the next 60 days and he added that the ratification process may take longer.”
Positive news temporarily drowns out the Kavanaugh Kabuki
While the media on the whole would like to avoid stories like this one that show President Trump and his administration in a positive light, this new agreement is a very big deal. The USMCA agreement effectively removes one-third of the tariff terror that has periodically transfixed Wall Street – to the negative – for most of 2018. Next up on the trade agreement list: Europe and China.
Europe will be harder, but China likely won’t budge at this point. That’s nearly always the case with essentially totalitarian governments.
But solving one third of our current trade issues is way better than zero agreements. That’s why USMCA is a big win for Trump and the GOP heading into the fall elections. Today’s news on that agreement will, at least to some extent, dampen the sleaze factor, artificially created by The Swamp to derail the Kavanaugh Supreme Court nomination.
For that reason, at least for one or two days this week, we won’t have to see too much of the latest fake filth the Democrats are peddling to sink the Kavanaugh nomination. Or at least we won’t see it on page A1.
What to do with our portfolios?
Investors might want to consider taking what they can get, profit-wise, on a happy news day like today. Weaker stocks and weaker positions that remain in profit territory are good candidates for harvesting. We’re looking to cull a few of our own positions in this category.
The reasons for narrowing portfolios down right now are subtle. Underneath the surface, stocks in some sectorss till appear abnormally vulnerable to even a hint of negative news. Sectors like Consumer Discretionary and Consumer Staples, or Durables. The retaliatory Chinese tariffs have these stocks spooked. That’s true, even though retailers in particular are likely to book big-time sales this Christmas Season.
Whatever your politics, should the GOP lose even partial control of Congress this November, markets could tank. As we’ve noted before, most professionals in the investment business, and indeed a great many corporate CEOs are rapacious capitalists and die-hard Democrats. As businessmen, they tend to love the GOP tax cuts and Trump’s take-no-prisoners, regulation-cutting policies. But they detest Trump, at least in public.
So what policy direction will these corporate moneybags choose in the November election? More Obama-style “fundamental transformation”? Or another two years of Trump and the GOP pumping the U.S. economy back up to ramming speed? Even the moneybags must know they can’t have it both ways.
Bottom line: maybe we should sell some of our profitable but less exciting positions at this point. Why wait for the big boys to take our profits away later this fall?
— Headline image: President Trump announcing new USMCA agreement at White House press conference, 10/01/18.
Screen grab via Fox Business.