Why Are Shipping Stocks Up?

By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/profitable-investing-tips/why-are-shipping-stocks-up
A surprise result of the election of
Donald Trump is that shipping stocks
are up.

This is the guy who promises a trade
war with China and Mexico if not
everyone else.

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Forbes writes about the Donald
Trump shipping stock boom.

Euroseas is a tiny Greek shipping
company with a fleet of 12 vessels and a
penny stock traded on Nasdaq.

On Tuesday, Euroseas’ shares rose by
100%.

Since Donald Trump was elected
president, Euroseas’ stock has nearly
quadrupled.

Seanergy Maritime, another small dry
bulk shipping company that moves
grain and coal, saw its shares soar by
75% on Tuesday.

Shares of DryShips, a Greek shipping
company that recently looked like it
could be headed for bankruptcy, have
climbed by 1,400% since Election Day.

What is going on here? It would appear
that people are expecting an economic
boom in the USA.

We recently asked how the market
would respond to a Trump victory.

Trump is essentially proposing another
round of supply side economics in which
taxes are cut, especially for the wealthy,
with the intent that subsequent
investment generates more jobs and
wealth.

There is talk that he will also cut a deal
to reduce taxes on money repatriated
from offshore accounts by US
corporations.

Why shipping stocks are up is because
traders believe that tax cuts, repatriated
money and infrastructure spending will
drive the American economy higher.

That means more imported raw
materials and, perhaps, more sales
overseas.

That latter part, however, is
problematic.

Supply side programs often lead to
inflation and we questioned if how the
market would respond to inflation.

To the extent that inflation is moderate
the Fed can raise rates and help to
control it.

To the extent that it becomes a run-way
phenomenon like forty years ago it will
wreck the stock market and the Trump
presidency.

A faster rate of economic growth will
benefit many, not just those who get
jobs in the infrastructure improvements.

However, there is an issue with trade
and treaties.

Trump may believe that he can bring
jobs in manufacturing back to the USA.

The problem is that the consumer
market is driven by people buying
things.

The Chinese have learned this to their
dismay.

You cannot just borrow, invest and
manufacture.

You need consumers and until the
consumer market recovers that will not
work.

Shipping stocks are up in expectation of
boom times in the USA.

These stocks were generally depressed
due to the Great Recession and a very
slow and partial economic recovery.

But, what goes up can come down.
What happens to these shippers if
Trump picks a trade war with China?

Trump’s China Trade War

Bloomberg looks at how a trade
war with China would work out.

As a candidate, Trump pledged to label
China a currency manipulator, bring
cases against China for “unfair subsidy
behavior” and use “every lawful
presidential power to remedy trade
disputes,” including the application of
tariffs.

He once broached a tax of 45 percent on
imports from China, then denied
bringing it up.

The problem for Trump is that his
argument is at least a decade out of
date.

China is fighting to raise the value of its
currency and not working to drive it
down.

It has a huge problem with capital
flight and is trying as hard as it can to
raise the value of the Yuan.

Trump can levy temporary import
surcharges on Chinese goods or go with
more permanent measures.

For China this would be a disaster that
would remove hundreds of billions of
dollars of trade from its economy.

Estimates are that the sort of 45%
tariffs suggested by Trump would
reduce Chinese exports to the USA by
87%.

In return China can buy its airplanes
from Airbus instead of Boeing and buy
its soybeans and corn from Argentina
and Brazil thus hurting the two biggest
US exporters, the airplane and
agricultural industries.

The up side for China is that Trump
wants to kill the Trans Pacific
Partnership so that China would have
its own way in developing an Asia-
Pacific trade group that excludes the
USA.

Why Are Shipping Stocks Up?

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