Happily Ever NAFTA

Aug 31, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets drifted higher again this week.  While the news out of Washington D.C. continues to play out like a bad soap opera, the economy deserves an Oscar nomination for best picture.  It seems investors aren’t getting too caught up in the daily drama, tweets, rumors, and accusations.  Investors would do well to keep their eye on the destination and not focus too much on the hurdles along the way.

So this was the week that NAFTA was going to be resolved.  A deal was reached with Mexico on Monday, but as of this writing negotiations with Canada are faltering.  The White House wanted to reach a deal by the end of today so it could send the agreement to Congress for a 90-day review required by law.  Mexico will swear in its incoming president, Andres Manuel Lopez Obrador, on December 1.  If a pact isn’t signed before then, Lopez Obrador could demand changes – and a deal that took years to negotiate could unravel.  Trade between the three countries totals more than $1 trillion annually.  As it stands, the proposed terms would strengthen North American manufacturing, along with improving intellectual property, labor, and environmental standards that could benefit U.S. companies and American jobs.

While we’re on the subject of trade, no headway was made with either the European Union or China.  In fact, both offered concessions this week and were rebuffed by the White House out of hand.  It seems the current approach is to make them sweat a little with an additional $200 billion in tariffs being proposed as early as next week.  With some U.S. farm products getting slammed by retaliatory tariffs, the Trump administration is prepared to begin its emergency plan for agriculture right after Labor Day in a “three-pronged” approach that will initially include about $6 billion in aid.  Agriculture Secretary Sonny Perdue declared this week that, “farmers cannot pay their bills with simple patriotism.”  Indeed, they cannot.

In company news, Starbucks decided to roll out pumpkin spice in its earliest debut ever for the popular fall drink.  Starbucks introduced the drink in 2003 and it is now the company’s top-selling seasonal drink.  One wonders when it will become a permanent fixture on the menu.  In other news, Tesla lost its chief people officer.  I had never heard the term nor did I know such a position existed.  Apparently, the CPO is like an HR strategist and has become an important position for many Silicon Valley companies as they each pick off talent from one another.  Another interesting tidbit on Tesla is that Volkswagen wanted to take a $30 billion position in the company, according to the Wall Street Journal, but that Musk reportedly was uninterested in giving Volkswagen such a large stake in the company.  It makes one wonder if he really intended on taking the company private after all.  That will be one for the SEC and courts to figure out.

Before I finish this week, we need to talk about artificial intelligence (AI).  Innovation is moving quickly from automation, to self-driving cars, to the latest – AI.  I am seeing more and more stories about projects and developments regarding this field that it is becoming hard to ignore what seems inevitable.  Under the Defense Research Project Agency’s (DARPA) artificial intelligence program, Raytheon is developing a first of its kind neural network that explains itself.  It aims to help humans understand, appropriately trust, and effectively manage the emerging generation of “artificially intelligent partners.”  Along the same lines, JPMorgan poached a senior executive from Google who had headed up Google’s cloud-based artificial intelligence.  He will now be head of asset and wealth management artificial intelligence technology.  And Reuters reported this week that artificial intelligence will play a key role in the advancement of diagnoses and treatments across the healthcare spectrum.  Siemens has leveraged AI to develop a digital heart that mimics the electrical and physical properties of real cardiac cells enabling surgeons to run simulations before surgery, to see if a pacemaker is appropriate for a particular patient.  A shortage of doctors in China is stoking demand for AI tools to analyze medical images.  Alibaba is one of the early leaders, using cloud and data systems to develop AI solutions to analyze CT and MRI images.  AI is making progress on many fronts and at a rapid pace.  The technological singularity may not be as far in the future as you may think.

In closing I turn to a different type of innovation.  It seems Mondelez has been burning the midnight oil to come up with new flavors for Oreos.  While only available in China (thankfully), its latest releases are hot chicken wing flavor and wasabi-flavored Oreos.  However, in the United States we have two new permanent flavors, chocolate peanut butter pie and pistachio thins and three limited addition flavors, Good Humor strawberry, peppermint bark, and rocky road trip, which should be available by the end of the year.  While technological advances are great, it is sometimes nice to look back on our childhood memories, only to have them leapfrog forward into the future.  Now you know.

August 31, 2018

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