Weighing the Week Ahead: Is it Time to Worry About a Trade War?

The economic calendar is light. Most of the “financial” news flow relates to non-core stories. Of the various geo-political themes, there is one that is most significant for investors. Expect pundits to be asking:

Is it time for investors to worry about a trade war?

Last Week Recap

In my last edition of WTWA I suggested that investors were too focused on the shifting geopolitical winds. For most, it was better to ignore them. The chart of the week’s events illustrates the value of that advice. Stories about Italy, North Korea, and China had twists and turns leaving the market unchanged. If you tried to trade them, you probably lost money. Wade Slome calls it S.T.I.N.K. and invokes the wisdom of Yogi Berra. Some will wonder whether this week’s theme contradicts last week’s. No. While trade talk progress ebbs and flows, the overall issue merits consideration. I go into more detail in today’s Final Thought.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.

The market rose 0.5% with a trading range of about 2.5%. The pattern is quite interesting, including several gaps from “fresh” geopolitical news. As we can see, these big stories made little difference by week’s end. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility is back into the long-term range.

Noteworthy – Debt and Auto Sales

A few years ago, a conversation with a top salesperson at a large auto dealer provided some great information. Nearly all their buyers of new pickup trucks were under water on their current vehicle. The dealership was trying to convince them to adopt a 3-year (or at worst, 4-year) buying cycle and the loans were five and six-year loans. The popular rebate structure allows the rebate to be treated as a down payment and makes the whole deal work. Cars are sold according to payments, so stretching time out is helpful for sales. With continuing high auto sales, investors should take a deeper look. CNBC’s Phil LeBeau does his typical nice job with this story. Here are three key elements:

  1. The new standard monthly payment is now $523, up $15 from last year.
  2. The average loan is a record high of $31,453.
  3. The average loan length is now five years and nine months.

On the positive side:

  1. Fewer delinquencies, 1.86% for thirty days.
  2. Fewer subprime loans – down 8.4% for subprime and 14.1% for deep subprime.