MorningWord 1/4/17: The Crony Awards

by Dan January 4, 2017 10:13 am • FREE ACCESS

Last night on CNBC’s Fast Money the panel discussed the President Elect’s Tweet of the Day. The tweet focused on U.S. Automaker General Motors (GM) and their production of cars in Mexico which are sold back into the U.S., and Ford’s (F) announcement that they are killing plans to make a $1.6 billion plant in Mexico:

My point was that GM was an easy target givenit was the one bailed-out by the government back in 2009, not Ford. (Although if GM had gone under, the rest of the auto industry was also at risk). I suspect once Trump takes office in a couple weeks, shots at major U.S. companies will slow as he will have more important things to do than chalk up burns on Twitter! But if they continue in any form, remember just how haphazard they have been to this point. One of the President Elect’s strengths in getting to this point has been the ability to feel what the crowd wants and deliver. This often changes dramatically depending on the crowd. The crowd on Twitter is perfect for these tweets as any controversy can go viral. Supporters get the message, critics amplify by arguing, and with Twitter being the virtual Rooftop Bar at the Rex for political reporters, the media (and us) can’t help but take the bait.

But the crowd changes once in office. And the assumption right now is that Trump will be “pro-business”. But the problem is that may mean specific businesses. There may be angry tweets and threats of tariffs with companies the president elect has no relationship with, and tax breaks and repatriations for companies where he’s personally met with management.

I am hard-pressed to see how this will be pro-business unless you know ahead of time what business.

One of the themes of the company specific tweets so far has been fighting for U.S. jobs. And that’s a noble pursuit. But as Bloomberg’s David Welch and Dave Merrill this morning make the case, it’s complicated:

Why Trump Tariffs on Mexican Cars Probably Won’t Stop Job Flight:

The largest car companies have announced at least $22 billion in investments and about 25,000 jobs at new or expanded plants in Mexico by 2019. And that’s just the jobs that have been made public.


Cheaper labor is only one reason Mexico has seen a surge in new-car production. While the country’s low wages have been the big attraction, one of its key advantages is that it has trade agreements with 44 countries, giving automakers access to half the global car market tariff-free. The U.S. has similar trade deals with just 20 countries, which make up 9 percent of global car sales, according to the Center for Automotive Research in Ann Arbor, Michigan.


Less than 10 percent of U.S. production is sent offshore because American plants tend to make more expensive vehicles that car buyers in emerging markets can’t afford, and because Mexico’s trade deals have increasingly made the country a center for export.

GM will send more than half of the new Chevrolet Equinox SUVs built at a plant in Ramos Arizpe, Mexico to markets in South America, the Middle East and Asia, according to a person familiar with the matter. Similarly, Audi opened a brand new plant in Mexico to build its Q5 luxury SUV in September, with executives talking up the country’s free trade deals when it announced the start of production.

“I some ways it makes no sense to bash Nafta,” said Swiecki. “You could abolish the agreement but that won’t abolish the other agreements that Mexico has with other countries.”

Once he takes office, and his cabinet picks face confirmation in the coming weeks/months, this behavior should cool down a bit and some steadier hands should will take the reins on such complicated issues upon confirmation.

As for picking stocks in sectors that have been targets of Trump. GM’s price action yesterday… closing up on the day suggests that investors are less concerned by the company specific cyber-bully pulpit. F’s nearly 4% gains may show the path of least resistance after being the target of Trump. The gains had more to do with investors trying play a little catch up with a 2016 laggard, and these tweets have been just that so far, as we’re not even to inauguration. The question for investors after that is if these Tweets turn into actual economic policies where tariffs and tax breaks determine winners and losers. If that’s the case, the best investment research you may need is a Twitter account and a list of CEOs visiting the West Wing.