Bern Factor. Weekly Letters

By Mark Bern, CFA The Q4 GDP growth was revised higher by 0.4% to 2.9% by the Bureau of Economic Analysis this week.   What does this mean? First, it means the economy was growing faster than originally reported and much closer to the forecasts of 3% that preceded the actual report.   Most (2.8%) of the GDP growth came from consumer spending.   This is good but not as good as it would appear on the surface.   In Q4 of last year there was a lot of spending on repairs and replacements due to Hurricanes Harvey, Irma and Maria.   There may be some more in Q1 but not as much and going forward there will be less and less until the impact of those natural disasters is completely healed.   The revision is in the right direction and gives the Federal Reserve more flexibility to continue to raise interest rates as scheduled. Jobs growth continues strongly throughout Q1 also which portends continued economic expansion, growth in consumer spending and potentially minor upward pressur

By Mark Bern, CFA This week the tariffs on steel and aluminum were scheduled to go into effect.   Those tariffs were pushed back today after having been diluted last week.   This week the Administration announced new 25% tarrifs on at least $50 billion imports billion in Chinese imports per year, perhaps as high as $50 billion.   The Chinese have declared that they would relalliate with tariffs on 128 imports from the U.S, including grain and hogs. ($3 billion last year). The total U.S. trade deficit was $566 billion in 2017 and of that total $375 billion was with China.   That is more than 65% of the total annual deficit.   The reason for the deficit is that China has many barriers that keep imports out.   An example is on cars.   China charges 25% fee for U.S. cars sold in China while charging only 2.5% on cars made by Chinese companies.   If a technology company wants to manufacture products in China it must be 51% owned by a Chinese company.   This is why there are so