Show of Hands: Who is Not the Offspring of Immigrants?

Except for Native American Indians and African-Americans brought here by force in slavery, everyone in this country has immigrant roots. The invectives lobbied against earlier waves of immigrants is a matter of record. Italians were wops, Irish were Roman infiltrators. Germans were at various times the enemy or not, and accommodated Jews on a space-available basis, with paranoia dictating the numbers.

Fast forward to today. In a country of 329 million citizens whose population growth is rapidly approaching zero, we are fixated on fewer than 20,000 people seeking political asylum. Talk about optics.

What we have is a President of the United States who is using the issue of migration and asylum, such as it exists, to buffalo the entire U.S. Government to prove that if the threat does not exist, the remedies are all in place. A classic case of a solution in search of a problem.

Note that I am not attempting to address the issue of child separation, which is indefensible. That is for another time and for a historian to connect the two. There are many other government policies to comment on.

The first and most obvious question: where will the population growth of the country come from in the absence of immigration? A study out this week said that whites were declining in population due to a combination of low birth rate and the opioid epidemic killing off so many of the young. In spite of this, our President insists that the greatest dangers to the country lie across the border and not within to both absolve and placate his base.

Approval among his base is quoted in The New York Times as reaching 90 percent. However, with a Republican Party that claims at the most 30-35 percent of the electorate, this translates into about 30 percent of the popular vote. Too, there is an undercurrent of how the current situation on the border impacts women as opposed to men. Men can object, but women can relate. In the absence of resolution, expect this to linger as a campaign issue into 2018.

Does this mean a “blue wave” for the fall? Not necessarily. Democrats, who practice representation to their detriment, often nominate party appeal over electability, while “moderate” seems to be a dirty word in both parties. The Democrats need it more to make inroads.

If “moderate” is not available among either party, prepare for a party to be born of both moderate Republicans and Democrats after 2018. People are getting tired of reality show politics and want politicians who can compromise and get things done, regardless of ideology.

Akin to immigration is the notion of trading partners. For the 73 years after the end of World War II, the cornerstone of the Republican Party’s domestic and foreign policy was free trade. The idea was that we would benefit from importing cheaper foreign labor, making things abroad while exporting value-added goods and services overseas.

Now, any country who runs a surplus with the U.S. is suspect. Never mind that our surplus in services rectifies most of the balance.

In this sense, Trump’s trade strategy is based on an ideology that is at least 100 years old. Only affirmation from his base drives him forward with this grievance.

The risk is that for the first time since Herbert Hoover, we may be entering an economic decline that is perpetrated by government policy. While Hoover had nothing to do with the crash of 1929, his response exacerbated the situation. Trump is taking a strong domestic and world economy, and by picking fights with our allies, has isolated the country and threatened global growth. Since when did “America first” become “America alone”? Domestic and international trade will suffer further.

Those who still back Trump feel the need to do nothing. Those who are against Trump feel the need to take corrective action. It is unknown how much an opposing party can influence things. Taking over the U.S. Senate and House would be a start. For a government in exile, it is sensed that a resolution will not be impeachment so much as an indictment. The fall schedule should prove to be very interesting.  

The Economy

The economy is doing well. The problem is that there is not a lot of conviction that the future will be like the present.

The good news is low unemployment (3.9%), more jobs than applicants, etc. The problem is the lack of workers. Even the number of temporary job visas has shrunk to such a low number that only when Trump’s resort properties are in need of workers is the number of temporary visas lifted. One goal of the Trump administration is not only to eliminate illegal immigrants but to sharply reduce the number of legal immigrants as well.

The bad news is that the effects of the Trump Trade War are already being felt. The lack of Canadian lumber imports is driving up the cost of homes to the point that first-time homebuyers can no longer afford to buy a starter home. Nor can empty nesters afford to downsize, given current construction costs. Workers in any number of seasonal industries are non-existent.

Harley Davidson announced that the tariff would result in the company taking production offshore to avoid tariff taxes, with a corresponding loss of U.S. jobs. The White House threatened them with an extraordinary IRS audit if they made good on their plans to export jobs abroad. Not making America great again. It is making America something else that we have never been before.

Interest Rates
Interest rates have a somewhat upward bias for this year and the next. The Federal Reserves’ Jerome Powell has indicated that the economic cycle alone justifies higher interest rates.

One thing to look for is the Chinese impact on interest rates. The Chinese do not need to dump U.S. Treasury bonds. All they have to do is stop buying them. With the U.S. economy needing close to $1 trillion per year in new financing, the ensuing rate rise would cause interest rates to spike, leading to all kinds of disruption to the economy.


Inflation is only noted peripherally, if at all. That will all change with the demand this fall for a minimum wage increase.

The U.S. is the only major developed country to provide government assistance to those who work for the minimum wage; this creates less welfare for the individual and more corporate welfare for the employer. A minimum wage that is high enough to remove people from government assistance should be the goal of all who desire both less government spending as well as a productive workforce.

A higher wage will result in increases of all wages. However, since the lowest rungs of the economic ladder are most prone to spend their higher income, a higher wage will also result in higher spending and economic activity as well.

The Stock Market

Stocks have had two recent increases in their earnings forecast, by both Standard and Poor’s and Goldman Sachs. In both cases, while the earnings estimate went up, the goal of fair valuation did not, implying that both firms see interest rate being a brake on the market going forward.

Of all the sectors of the market, energy and technology seem to have the most promise. Within these sectors, there are a number of firms that would be considered over and under-valued.

Warren M, Barnett, CFA
June 27, 2018

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