Towards the end of July the price of gold steadied after US President Donald Trump who criticized the Federal Reserve's interest rate tightening policy. In more recent events, Trump doubled tariffs on Turkey’s steel and aluminium.

In the US gold prices have hit a 17-month low, falling down to the $1,200 mark and are increasingly trading lower. In other countries the price of gold continues to rise.

Daniel Marburger, Managing Director at Coininvest told Finance Monthly: “Gold prices soar in times of uncertainty, which is why many people expected gold price to fall once Trump was elected.

“Throughout his presidency, Trump has proved to be a controversial character and we’ve seen movement in gold price reflect this.

“He has had a positive impact on the value of the US dollar which usually lowers the gold price, however, current trade wars Trump has started with the EU, Canada and China are offsetting this, slowing the decline.  

“High interest rates make gold a less attractive investment, unlike other investments it doesn’t offer interest. It will be interesting to see how the US president’s decisions will impact the value of gold throughout the rest of his presidency – especially as we approach the mid-term elections in November.”

Last week it was announced that the UK has overtaken the US on fintech investment for the first half of 2018. Simon Wax, Partner at Buzzacott below looks at how companies must address and identify their sweet spot in the market to ensure long term success.

It’s terrific to see the UK is leading the way when it comes to fintech. Funding is at an all-time high and the UK should certainly feel proud of its ability to attract more investment into the sector than any other country.

To secure continued success for the UK’s fintech scene, it’s vital that these young companies are able to scale successfully, and to do this, they will need to overcome some challenges. Increased uncertainty around Brexit and how this will impact the UK’s access to the digital single market, the availability of skilled technical workers and even funding for R&D are all key risks for small businesses.

Scaling fintech companies need to focus their efforts on long-term success, not being the biggest money maker. The risk is companies may lose sight of what they originally set out to do, a trap in which young companies can easily fall into, when not careful. Leaders must take a methodical and responsible approach to fundraising, bring in investment which matches their aims, rather than taking the first offer of funds. There are many options out there such as UK R&D funding, through sources such as the Industrial Strategy Challenge Fund or Innovate UK. Scaling fintech companies must address and identify their sweet spot in the market, and develop a business plan focused on which best suits their model. That way, scaling businesses can secure their success in the market, and grow in a way that is right for their business.

The investing landscape has changed significantly over the last decades. Historically, the large banks have been happy enough to manage investors’ money and keep hold of the information. For those wanting to become involved, it was too tough, or too expensive. Here Finance Monthly hears from Kerim Derhalli, CEO at Invstr, on the potential for fintech to succeed in a complex evolving landscape.

Now, with an unprecedented amount of tools at our fingertips to make the process of committing cash to the stock market – or indeed other assets such as bonds – much easier, you’d expect us to be experiencing a golden age for financial independence and empowerment.

Despite this, the data tells a very different story. A recent US study by Gallup, for example, found that the combined age of adults younger than 35 with money in the stock market in 2017 and 2018 stands at 37%, down from 52% in the two years leading up to the financial crash.

While it’s true that a lingering distrust of financial institutions is impacting millennial sentiment towards stock ownership there’s a bigger story here of a more fundamental failing across the fintech industry – which is still not even scratching the surface of its potential.

Let’s look at this in simple, real world terms. If I were to stand on a street corner and hand out £5 notes to anyone passing by, I'm sure I would have several million people taking up the offer of free cash. If I stood on a digital street corner, the uptake would be even higher.

However, fintech brokers who have deployed these same techniques have apparently failed to attract huge followings. What are they missing?

Well, what many of these platforms are failing to understand is that investing is a process, not an event. Understanding what is going on in the world or at an individual company level, reading the news, following the markets, looking at charts, reading research, talking to friends, peers or strangers to get investment ideas are all part of the process.

The last part, the buying and the selling, only represents 1% of the investment process, and is by far the least exciting part of it. Companies that make the transactional and comparatively dry element the focus of their product are missing the fundamental quality of what makes fintech such an exciting proposition – and doing wannabe investors a disservice in the process.

For me, fintech is the manifestation in the financial markets of the information revolution. Whether it’s about internet or social networks, the sharing economy and now cryptocurrencies – it’s all about empowering individuals.

With investing apps, this means giving users access to data that was formerly the reserve of the large financial institutions and teaching them to interpret how real world events can impact on the stock market.

This is excellent practice for investing, whether via a mobile app or otherwise, where those who truly profit chart a path by making their own investment decisions rather than relying on passive funds that track the major exchanges.

Ultimately, it’s about putting people in a position where they can manage their own money. The disruption we’ve seen in every other consumer sector, where the empowerment of individuals has done away with intermediaries is the real opportunity. If more companies in the fintech industry can capture that space then the impact on finance will be truly transformative.

Ingmar Rentzhog is a Swedish entrepreneur who founded and serves as the CEO of We Don’t Have Time, a tech start-up aiming to become the world’s largest social media platform for the climate crisis. He is also a Climate Reality leader trained by US former Vice President Al Gore. Here Ingmar tells all about his company, its mission and accomplishments in its endeavour to raise awareness of and combat the ways in which we contribute to climate change before we run out of time.

What inspired the foundation of We Don’t Have Time? How has it faired compared to your initial goals?

The election of Donald Trump for US President was a climate wake-up call. He got me and many others to wake up and realise that our leaders won’t solve the climate challenge by themselves. We are the ones who need to do it, all together. My first step was to set up a small team of professionals that I knew well, and like myself were dedicated to the cause. Earlier this year, we raised US$1.2 million through the equity crowdfunding platform FundedByMe. It was a success and we got 200% oversubscribed where we attracted over 430 investors from more than 15 countries all over the world, a mix of both ordinary citizens and angel investors. Right now, we are concentrating our efforts on building our platform. So far, as a kind of “teaser”, we have launched three action tools, one for sending climate love and climate bombs to chosen world leaders’ tweets, one for making a short selfie-video with a personal climate resolution, and a tool for carbon compensating your emails.

What motto does We Don’t Have Time live by? What is its long-term objective?

Our name – We Don’t Have Time – is our motto. We also have a manifesto on our website that basically states that climate change is an on-going catastrophe and that we need to act now. We all need to step up and come together.

The political and economic elites are clearly not taking climate change and the threat against our ecosystems seriously enough, or we wouldn’t be where we are today. We can’t trust that political leaders, government officials and financial stakeholders will do enough by themselves – the challenge is too great, the issue too important, the catastrophe too imminent. We believe that real change will only come if a movement of ordinary citizens from all over the world demands change. We must push them, ourselves, and our peers, to do much more, and faster. By building the world’s largest social media platform focused on climate change, you, me, my friends, your friends, our families, all and everyone – can be the change by the power of many.

If a large enough number of ordinary citizens come together to share information, policy proposals, solutions and demands for action, change will happen. Our platform could make that happen. Everyone – ordinary citizens, politicians, organisations and climate friendly companies could participate. We would like to involve everyone that shares our concern for the future.

The long-term objective is to acquire at least 100 million active users that can propel real change on our platform. This will be financed through a revenue flow from advertising by climate-friendly corporations that want to engage conscious customers.

What impact has We Don’t Have Time made on its cause since its creation? Is it what you expected?

We launched the tools that I mentioned by hosting the world’s first “no-fly” global, climate conference, The 2018 We Don’t Have Time Climate Conference. Experts from all over the world participated on video call and in our studio. The conference attracted a global audience of 9,000 attendees from 90 countries. We haven’t launched the platform yet, but we publish blog posts regularly and are very active on social media. Over a million people either follow us, have interacted with our action tools, have watched clips from our launch or read our blog and our newsletter.

What is the current threat that climate change poses on the world and the economy?

We are already seeing it: Extreme weather, droughts, wildfires and floods. It will get worse. Climate change is an existential threat to our civilisation and thus, by extension, to the economy. We all, including investors and business leaders, have a moral obligation to take a long-term perspective, but it’s also in our self-interest. If we don’t solve this, the future will belong to warlords, not businesspeople. If you want to run a profitable company some years from now, then you need to focus less on maximising profit for the next quarter and more on how you and your peers can be part of the change that must happen.

What would you say is the vital first step in raising awareness of climate change?

It is to realise basic scientific facts about climate change. The level of CO2 in the atmosphere, global warming and the frequency of extreme weather events are undeniable facts that all point in a very alarming direction. Then you need to analyse the connection between your current lifestyle choices and green-house gas emissions. If you are a business leader, you need to analyse the carbon footprint of your organisation. From there, you can start making choices towards reducing your emissions.

What can we do as individuals to aid in the battle against climate change?

By making conscious, informed choices, and sticking to them. The best way to influence others is to set a strong example. Don’t try everything at once, instead try to become really good at something – for instance eat more green food – and be vocal about it. Above all, be a positive role model by showing your peers that you can come a long way by choosing a green alternative, be it a vegetarian diet, train travel, or something else. Show that living green is not a sacrifice, it’s a better lifestyle!

What importance does social media have in today’s professional business world and associated activism? How do you think this has changed over the years?

I think it’s beyond doubt that social media is a real game changer. Institutions and organisations don’t have the same control over their message and the image they project. So they must be much more proactive in terms of building relations with influencers and creating innovative strategies that work in today’s media landscape. It’s much harder for corporations to gloss over irresponsible behaviour. The crowd, or actually, the market, will immediately punish them for that. With We Don’t Have Time we want to accelerate this trend with a strong focus on sustainability.

What difficulties, if any, have you run into in the process of building We Don’t Have Time from the beginning? How did you work through them?

As a tech company, we are dependent on much sought-after, and expensive, technical competence and to continuously work hard on QA. It takes time to find, educate and manage the development team. I don’t think we have had more difficulties in this area than any other start-up, but it’s the single most challenging issue that we face, especially for a fast-growing company like ours. But that sort of makes sense, because developing the platform is key to building company value.

How have your previous experiences and professional roles prepared you to run this company?

I have been an entrepreneur my entire adult life. I founded one of Sweden’s biggest financial communications firm back in 2004 and it has been a profitable company ever since. Along the way, I have founded and managed many associate companies and subsidiaries, developed communication platforms and established my old firm in its current position as a top-tier financial communications consultancy.

What has been We Don’t Have Time’s greatest achievement so far? What would you attribute this to?

We have come from nothing and gained a fantastic reach. As I mentioned, over a million people have interacted with us through social media, our blog and our action tools. What makes me proudest is that we get daily requests from people that want to help our organisation from all around the world. For me, this is proof of concept. We are already attracting ordinary citizens that are concerned about this issue. When our platform is launched, they will join it and our movement will gain momentum.

What do you anticipate in the year ahead for We Don’t Have Time and yourself?

The launch of the first version of the platform will be a huge milestone for us. We also plan to follow up on our successful conference.

Find out more at wedonthavetime.org

Thursday's plunge knocked roughly $120 billion in market value off the tech stock and is dragging the rest of the sector lower. Before Thursday, Facebook's largest single-day loss came in July 2012 when it shed 11%. The company missed projections on key metrics after struggling with data leaks and fake news scandals.

In light of recent reports, David Jones, Chief Market Strategist at Capital.com here comments on the impact of the meeting between President Trump and President Putin, and the US quarterly earnings season, on the financial markets.

At the start of the trading week, politics remains in focus for many markets. Last week saw President Trump visit the UK and today he meets with Russia's President Putin. Apparently, there is no formal agenda for the meeting but of course given both personalities involved here there is always the possibility of surprise which could have an impact on markets.

The end of last week saw a very strong finish for stock markets - in the USA the broader S&P500 index finished at its best levels in more than five months. The question now is whether there is enough momentum left to challenge the all-time high set in January of this year. There's plenty of news-flow for stock markets this week as the US quarterly earnings season continues with the likes of Netflix, Goldman Sachs, eBay and Microsoft all reporting. For the UK, the state of the High Street remains under focus with the latest retail sales due out on Thursday. The latest UK retailer under pressure is department store Debenhams with the weekend press reporting that its credit insurers were tightening terms. The share price of Debenhams has lost more than 50% of its value so far this year.

Last week was relatively quiet one for major currency markets. The pound continues to swing on various political resignations and utterings from the UK government but is broadly unchanged over the past three weeks. It's a big week for UK economic data with the latest unemployment numbers released on Tuesday and inflation on Wednesday - the CPI reading is expected to show 2.5%. It could well mean more volatility for the pound in the days ahead.

The price of oil continues to flip-flop around the $70/barrel mark. Although this has recently set three-year highs, it has been somewhat directionless in recent weeks. Perhaps there is something from today's Trump/Putin meeting that will inspire traders to pick a side and set up a more meaningful push here.

In light of last week’s events surrounding markets and Brexit talk, Rebecca O’Keeffe, Head of Investment at interactive investor comments for Finance Monthly.

There is no doubt that President Trump has been highly positive for US equity markets, which has fed through to rising global markets, but his increasingly erratic behaviour is making it very difficult for investors to work out whether he remains a friend or foe. His America first policy is designed to play well at home, but in classifying the rest of the world as competitors rather than allies, he has increased tensions and raised geopolitical risks for investors.

Bank of America, Blackrock and Netflix all report second quarter earnings today, which may provide further clarity for financials and the outperforming technology sector. Mixed results from three of the big US banks on Friday saw bank stocks fall, so today’s figures from Bank of America should provide further clarity for financials. Technology stocks have been the place to be invested in the first half of the year with the Nasdaq up over 13% compared to relatively flat performance elsewhere. The first of the FANGS to report, Netflix earnings are hugely important for investors to confirm whether the outperformance of technology stocks is warranted or if the market has got ahead of itself.

Calls for a second referendum and a coordinated effort by Brexiteers to undermine Theresa May’s policy and position means this could be a make or break week for the Prime Minister. Having set out a radical plan to seek what she believes is the best possible deal for the UK economy, Theresa May must now try to sell the deal to parliament this week. The hard-line Brexiteers have already indicated their objections, but they could also instigate a direct challenge to May’s leadership if they can secure the 48 Tory MP signatures necessary for a leadership ballot. After months of failed negotiations and an increasingly divisive government, this week is pivotal for Theresa May.

Trump’s escalation of the trade war is going to trigger a “chain reaction of negative events around the world,” says Nigel Green, the founder and CEO of deVere Group.

This warning comes as global markets are in turmoil as Donald Trump’s administration announced a long list of new products that tariffs on $200 billion worth of goods from China will be levied against.

Mr Green comments: “Trump’s escalation of the trade war between the world’s two largest economies is going to trigger a chain reaction of negative events around the world.

“It is going to lead to higher inflation in the U.S, as import tariffs raise the cost of imported goods while domestic producers find that they can increase their prices as foreign competition weakens. This means interest rates will be hiked and the dollar will go up.”

He explains: “China’s cheap goods have helped keep prices, and therefore US and global inflation, low.

“To counteract increasing inflation, the US Federal Reserve is even more likely to raise interest rates.  A jump in rates will, of course, strengthen the dollar.

“A stronger dollar also increases stress in emerging markets, many of which have borrowed heavily in recent years in dollars and who now find interest and capital repayments on these loans have shot up in local currency terms. In addition, emerging markets are particularly vulnerable to a downturn in exports resulting from a rise in quotas and import by the US, given that exports are a key driver of growth for many under-developed countries with China the most obvious example’.

Mr Green goes on to say: “Trump’s trade war is a masterclass in self harm for the US and global economy.”

The deVere CEO stated last week that investors must now avoid complacency and ensure their portfolios are properly diversified to mitigate risks and take advantage of potential opportunities that all bouts of market volatility bring.

He said: “Investors need to brace themselves for months of heightened posturing from the different parties, which is likely to increase market turbulence.

“And as Trump potentially marches off to a trade war, a good fund manager will help investors sidestep the risks and embrace potential opportunities.”

(Source: deVere group)

As the trading week gets under-way, once again it is the political world that has the attention of markets. Below David Jones, Chief Market Strategist at Capital.com, discusses his thoughts on this week’s markets.

The decision by the UK's Brexit Secretary David Davis to resign late on Sunday evening may have been expected to unsettle some - but that hasn't been the case so far. At mid-morning, the UK stock market was slightly higher and that Brexit-barometer - the pound - was trading at its best levels for almost a month. At first glance, this rise might seem somewhat illogical. But traders seem to be taking the weekend discussions and Davis's resignation as the sign that a soft Brexit could be on the cards - although the resignation does not exactly add much stability to Prime Minister May's government.

Politics is likely to be making the headlines for the rest of the week as US President Trump visits the UK. But it's another important week for the US markets as it is the start of earnings season. It kicks off on Tuesday with Pepsico but the main focus is likely to be Friday when the banks such as JP Morgan and Citigroup reveal how the last quarter was for their businesses. Expectations are running high that the last three months have been good ones - any misses here could well dent the near 105% recovery US stocks have enjoyed over the past three months.

In other markets, oil remains just below its recent three and a half year high. The last 12 months have seen the crude price rise by 70%, with little impact so far on the bigger economic picture. It does feel as if something needs to give here - $100 a barrel oil would surely start to slow down the world economy, but for now at least any dips in the price of crude just serve to fuel more buying.

(Source: Capital.com)

In life we generally want to be right. This is why you may hear traders framing their trading success by saying they won nine out of the last 10 trades, or that they have a 90% success rate.

However, having lots of winning trades does not necessarily mean that you will be a profitable trader in the long run. This concept is Ray Downer, Senior Trader Coach at Learn to Trade, explores below as he talks Finance Monthly through trade expectancies.

Let’s take two traders: Sarah and Mike are both traders that have placed 100 trades and started with the same amount of money in their trading account:

• Mike wins 75 trades and loses 25 trades
• Sarah wins 30 trades and loses 70 trades

Who is the better trader?

Although we can see Mike is right more often than Sarah is when trading, to determine who is the better overall trader we are missing some key pieces of information.

Firstly, we need to know the amount of profit made when one of our traders is right, as well as the amount lost when wrong. Another way of putting this is that we need to know our traders’ average reward-to-risk over their 100 trades.

So let us look at both of our traders again, but this time take into consideration their reward-to-risk:

• When Mike is right he makes a profit on average of £100 per trade; when wrong he makes an average £300 loss. This means that his reward-to-risk is 1:3.
• When Sarah is right she makes £300 on average per trade and when she’s wrong she loses on average £100. This means she has reward-to-risk of 3:1.

This gives us a bit more insight into the traders. We can see that mike, for example, is willing to risk three times more than he stands to gain in any one trade. Sarah in contrast is looking for a bigger pay-off but not willing to risk as much as Mike per trade.

Neither of those approaches is inherently good or bad as a trading strategy.

To really understand how each of our traders’ strategies stack up against each other, we need to take into consideration the two things we have mentioned here: firstly how frequently our traders have winning trades and secondly how much is gained or lost with each trade.

In trading terms, what we are figuring out is Mike and Sarah’s trade expectancy. Trade expectancy essentially tells us how much we stand to gain or lose as a trader for every pound risked.

Expectancy = (average gain x probability of gain) – (average loss x probability of loss)

We can make this a bit clearer using Mike and Sarah’s results:

• Mike’s expectancy per trade = (£100 win x 0.75) - (£300 loss x 0.25) = £0
• Sarah’s expectancy per trade = (£300 win x 0.3) - (£100 x 0.70 loss) = £20

What this tells us is that over the long run Mike is breaking even with each trade despite winning 75% of the time. As a trader the long term goal is of course to make a profit rather than break-even or lose money. For Mike’s strategy to become profitable he either needs to win more often and/or reduce his risk per trade.

Sarah’s expectancy tells us that she is making an average £20 per trade in the long run, even though she is winning just 30% of her trades. Her reward-to-risk strategy means that she can be wrong much more frequently than Mike, but still make a profit overall.

Both Mike and Sarah’s expectancy can improve or worsen depending on trading conditions and whether they stick to their trading plans. Nevertheless, expectancy is a good benchmark to evaluate a trading strategy. You could also think of expectancy as how much you can theoretically expect to get paid for each trade you take over time.

As we all know, it’s impossible to always be right when trading forex. However, figuring out your expectancy helps shift focus away from being right per trade to instead how right you are overall.

CNN's Jon Sarlin explains how Uber moved into the biggest market in the country and defeated the formidable yellow cab industry.

In January this year, Trump slapped tariffs of up to 30% on imports. In March, he added tariffs of 25% and 10% on imported steel and aluminium respectively. China and the EU retaliated with actual or threatened tariffs on hundreds of imported US products, but Trump hit back with a threat of further taxes.

Companies and investors caught in the cross-fire between tit-for-tat trade wars are concerned because:

• The US and China appear to be taking a hard-line approach to recent trade hostilities and so, escalation is possible and the economic consequences could be worse.
• The warring parties (EU, US, and China especially) are dominant economic powerhouses and their actions affect global and domestic GDPs, as well as the fortunes of millions of companies and people around the world.
• History tells us that trade wars have few, if any, winners.

The Financial Times suggests that a global trade war could knock 1-3% off GDP over a few years. They also reported that whereas capital expenditure (capex) by some US companies had risen, a Credit Suisse survey suggested that many businesses remained more hesitant about investing. Some have opted to hold onto their mountains of cash because of the uncertain outlook caused by trade war and geo-political tensions.

Capex

With reduced capex comes reduced employment and reduced productivity gains. Inefficiency eats into profit margins and competitiveness, lowering company values and economic growth, which leads to less capex, and so the vicious downward spiral continues.

Some companies might manage the situation by shifting production overseas, but in the process losing exported jobs. Relocation would also consume investment and time to raise production and adjust to the new dynamic, and in the meantime, the profit margin would diminish.

Uncertainty

A great drag on companies’ profits and a disruptive influence on supply chains, is the uncertainty that trade wars create. When will they end? Will they escalate? Which sectors will be affected and to what extent?

Chinese parts, for example, relied upon by US manufacturers, could become unavailable, or they might not. Just a month later, the US is backpedalling on its April 2018 ban on selling US company parts to Chinese company ZTE, a reversal that will cause turmoil among exporters and importers that must now reverse their plans to circumvent the ban.

Governments might retaliate to their counterparts in other ways. In 2016, China shut down Korean companies operating in China in retaliation to South Korea's actions. Hyundai and Lotte (both Korean) were denied car parts from local suppliers and 100 Lotte shops were closed. Countries have been known to expropriate foreign companies’ assets.

In the aftermath of the 2007 global financial crisis, investors stood on the sidelines for years with their pockets full of cash until asset prices and markets stabilised from the shock. The same hesitation could occur during trade wars and other geopolitical crises.

Higher funding costs

We have already seen some shareholders switching out of volatile equity investments into safer havens such as government bonds. That is likely to raise yields for borrowers, especially for high-yield borrowers, increasing interest payments and lowering corporate profits.

Currency risk

Investors’ flight to safety could significantly impact exchange rates as they dump risky currencies (such as those of some emerging market countries) and buy safer ones (such as USD), causing currency losses for companies that have not hedged their currency risks. Conversely, companies with a depreciating currency could benefit – for example, from the increase in value of overseas earnings that are reported in the depreciating currency. Those gains could be offset more or less, by higher import costs.

The IMF reckons that (without trade retaliation) the USD could appreciate by 5%. Appreciation of the USD could accelerate, causing further rises in costs of USD-denominated commodities, such as oil.

Commodity prices

Higher oil prices would adversely affect heavy users of energy, such as aviation, motoring, and manufacturing sectors. For example, American Airlines’ share price went down 6% after it expected $2.3 billion in additional fuel costs.

Winners and losers are expected from conflicts, such as trade wars, but sometimes the outcome can be unexpected.

Unintended consequences

American company Metal Box International was going to shut down after its sales had been decimated by cheap imports, but Trump’s protectionist trade policies changed its mind.

Metal Box, and other US manufacturers of products slapped with US import duties, should have seen its market sales rise as it filled the market gap created by reduced imports.

Anti-subsidy and anti-dumping duties imposed by the US on Chinese imports did result in a pick-up in Metal Box’s sales, but it was short-lived, because, according to the company, consumers and retailers feared trade war disruption so they stocked up pre-emptively. The company increased its capex in anticipation of higher sales volumes, but the machinery now sits idle.

The company’s hopes for business success were set back further by tariffs imposed by Trump on imported steel, because the company will now probably have higher costs of steel raw material.

Stagflation and GDP

Moody’s notes that workers employed by US business sectors that use steel far outnumber those employed in its manufacture, by around 5:1. That is also the ratio of job losses: gains predicted by Trade Partnership as a consequence of US tariffs.

“Protectionist trade policies, including tariffs on raw-material imports, could exacerbate these inflationary pressures [caused by global economic growth], running the risk of tighter margins and possible supply-chain disruptions in the manufacturing sector,” said Moody’s. Inflation could necessitate faster monetary policy tightening, i.e., more interest rate hikes. That would raise companies’ costs, denting their profits.

Sustained high interest rates and inflation could stymie global economic growth and create stagflation. A March survey by BoAML found that 90% of investment managers thought protectionism would cause either inflation or stagflation, and protectionism was investors’ primary fear.

Whereas some steel users will have the ability to pass on rising metal costs (either contractually, or through their brute forces of negotiating or price-setting), smaller companies will have to absorb higher input costs to maintain market share. For the former, profit margins will be protected, for the latter, they will contract.

Where investors are concerned, borrowers also need to be concerned, because the fortunes of both are intertwined. When investors become risk-averse and hoard cash, borrowers lose access to capital or pay a higher cost. Reduced profits ultimately hurt workers’ incomes, the economy’s GDP, and investors’ return on investment.

Unchecked, stagflation could deteriorate into recession, leading to job losses, reduced investment and further corporate financial distress. With many companies and individuals already highly geared with debt, a recession or stagflation that reduces income and the ability to service debt interest obligations, could trigger a wave of personal bankruptcies or corporate insolvencies, reducing GDP further and leading potentially to recession.

Companies might have to lay off employees to remain profitable or in business. Where last-in-first-out stock valuation accounting policies are used, profits will be quickly dented, reflecting higher stock costs. Cashflow will fall because of more expensive stock, or else companies will try to stretch their trade creditors’ goodwill even farther. Companies that can control their working capital interactions are more likely to survive than those with poor credit, stock, and trade creditor management practices.

Credit insurance

Companies’ trade credit insurance premia might increase, or be stopped of their financial position deteriorates. Credit insurance providers stopped providing credit protection to Woolworths’ suppliers, meaning it had to pay in cash, exacerbating the strain of its debt pile and leading to its administration. Without credit insurance, factoring of invoices, and conventional credit from suppliers, Toys R Us had to buy its games and toys as they were delivered. Without cash, a company’s shelves soon begin to empty, payments become overdue, staff are not paid, and operations grind to a halt, i.e., bankruptcy or insolvency ensues.

Gearing

Companies that have low gearing or operate in strong cashflow sectors such as fast-moving consumer groups, might withstand a cash crisis by raising additional debt, but companies already creaking under a mountain of debt and/or debtors, are more likely to break under the strain, and relatively sooner.

Almost 2/3 of aluminium and 1/3 of steel are imported by the US. Caterpillar and Boeing were caught in the firing line between the US and its trading partners because of their heavy and critical reliance on metals, and their international operations. Investors realised the negative implications so both companies’ shares dumped, sending their prices down more than 5%.

Winners and losers

Shareholders in US steel makers made a mint from US tariffs, US Steel and AK Steel, for example, rose 6% and 10% respectively. In the longer-term, US steelmakers could lose out from trade wars, however, for example, if manufacturers relocate, cut back on domestic production volumes, or use alternatives materials.

Other winners in the latest trade spat are companies that are more inward-looking or resilient to tit-for-tat retaliation, such as healthcare and BioTech. For example, shareholders in Johnson & Johnson, Merck, and Pfizer were some of the biggest winners in March. Other defensive regions and sectors include: Australia, Brazil, parts of Europe and Japan, and sectors such as telecoms, utilities, insurance, and retail. Countries whose GDP depends heavily on exports to the US, such as Mexico and Canada, are likely to suffer most from US protectionism.

Conclusion

Companies are in the cross-fire between trading countries, so they need to, above all, pay close attention to their cash flow and their survival over the longer term, even at the expense of near-term profit and revenues. They also need to monitor a changing geopolitical landscape and adapt accordingly. At such times, a company is likely to soon find out how committed banks and other investors really are to the company’s survival.

Website: www.permjitsingh.com