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Jeremy Siegel: Trump’s China Bashing Spells Bad News for Trade War

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Prof. Jeremy Siegel speaks at LINC 2018. (Photo: Lila Photo for TD Ameritrade Institutional)

President Donald Trump will continue to blame China for the COVID-19 pandemic, as well as the stock market volatility and rising unemployment that have resulted from it, and that may only hurt the ongoing trade war between China and the U.S., according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.

“Trump is going to be campaigning against China for his presidential reelection campaign,” Siegel said Monday during his weekly conference call on the state of the markets.

“There will be tariff talk,” he predicted, adding: “Tariff talk at this time is not good. No tariffs are really good at this point.”

However, he added: “My feeling is [it’s] going to be much more talk than it’s going to be action because he also knows the stock market doesn’t like it. But he’s got to talk tough for his base.”

It is “absolutely true that [China] totally bungled the beginning” of the coronavirus outbreak, and “had they not, we probably would not have this pandemic at all,” Siegel said. But “I don’t think it was intentional” on the part of the Chinese.

Before the COVID-19 pandemic started, many analysts projected that global economic growth this year would be tied to comprehensive trade deals, especially between China and the U.S. Trump signed a phase one U.S.-China trade agreement at the White House in January that was widely seen as a positive step toward ending the trade war between the countries, but most tariffs remained in place with it.

More Positive Signs

Siegel also pointed on the call Monday to positive signs on the COVID-19 battlefront that included an “explosion of testing,” as well as reports of promising developments with drugs that treat COVID-19 and vaccine development.

Although we are not yet seeing huge increases in COVID-19 cases in states that have opened up, he conceded it is still “very early in this opening-up stage.”

At least some experts believe there is probably a minimum of six months of immunity for those with antibodies, he said. A growing number of Americans are finding out whether or not they have antibodies through testing.

However, there is still “a lot of unknown — we need more data” on issues including whether warmer weather in recent days in the Northeast will lead to further declines in COVID-19 cases, he noted.

‘Consequences Down the Road’

Pointing to the U.S. Treasury Department’s plan to borrow $3 trillion in the second quarter this year to pay for the government’s pandemic initiatives, Siegel said: “That’s 15% of the GDP. That’s more than what was borrowed entirely for World War II. That is six times the previous record … You can’t tell me that that is not going to have consequences down the road.”

Overall, “we have created money and debt at a level in this crisis that far exceeds any other crisis” that the U.S. has ever had, according to Siegel, explaining: “In the last five weeks, we have had a 17% increase in the M1 money” supply that is made up of physical currency and coin, demand deposits, travelers’ checks, other checkable deposits and negotiable order of withdrawal accounts.

“That percent is virtually the same as the entire increase in that M1 money supply from the week before the Lehman bankruptcy to a year afterwards, in September of 2009,” during the prior recession, he said, noting: “We have jumped as much in five weeks as we did in one year … And I think this is just the beginning.”

Siegel again predicted that, when consumer confidence returns, “there is going to be liquidity on the hands of the businesses and the public that is going to spur a very strong economic expansion.” Whether it will be a V- or U-shaped recovery is “going to be determined by the virus,” he said, again predicting the recovery will lead to inflation like we haven’t seen in decades — as high as 5%.

“Things will change permanently” as a result of COVID-19, even when a vaccine is available, he also predicted. For one thing, he said, businesses are learning they can do a lot of things effectively remotely and there will, as a result, be an ongoing decline in business travel.

Buffett’s Misses

Referring to comments that Warren Buffett made at his annual shareholder meeting Saturday, Siegel said: “The Fed kind of pulled the rug from under him…. The Fed came in and it was too fast for him,” Siegel said, adding: “He’s a deliberate man” when it comes to making investments. The problem is that “if you miss the bottom by five days, you miss 10% of the market,” Siegel said.

Buffett struck some major deals when other investors panicked during the prior financial crisis, but he has been more cautious this time. “We have not done anything because we don’t see anything that attractive to do,” Buffett said at his shareholder meeting.

Echoing comments he made on his last conference call, Siegel on Monday again criticized the Buffett Indicator, which measures the sum total of market capitalization of all U.S. stocks relative to the country’s gross domestic product, calling it a dated system. Siegel questioned whether investors should “hang on every word” Buffett says when deciding whether to make investments or not.

Siegel estimated that Buffett’s “returns have been way, way below the market.” Although Siegel was quick to note “I admire Warren,” the professor said Buffett’s “performance has not been good over the last year, over the last five years, over the last 10 years — it’s way underperformed the S&P.”

Siegel also questioned where Buffett would be now if, four years ago, “he wasn’t dragged kicking and screaming into buying Apple stock” despite initially being more bullish on IBM, the only other tech stock Buffett had invested in.

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