Donald Trump wants you to drink stocks SIP by SIP

What we give to the sea. The sea gives back to us.

We were walking on the Marine Drive, trying to avoid the tonnes of rubbish that had come on to the promenade with the high tide.

But the city was looking very beautiful. The clouds were dark. And the lights that make up for the Queen's necklace were gradually taking effect.

It was then that she asked: "Do I look alright?"

And with due apologies to Eric Clapton, I said, "You look wonderful tonight".

"What's wrong with Donald Trump? Look at what he has been up to, imposing all these duties on Chinese imports," she said.

"He is appealing to his core vote base, the Americans who think that the Chinese are taking away American jobs."

"As in?"

"Simplistically, if duties are imposed on Chinese and other imports, these imports into America will become expensive. This will allow American companies to compete."

"Which they currently can't, because they can't produce stuff at a price which the Chinese and other countries can?"

"Yes," I replied. "The duties will make imports expensive and increase the chance that Americans will buy goods made in America."

"And this will create jobs?"

"Only if things were as simplistic as that."

"What do you mean?" she asked, as another huge wave, landed up with more rubbish in front of us.

"The problem is that if America can impose duties on Chinese goods, China can impose duties on American goods as well."

"Yes."

"Take the example of American wheat farmers. China used to buy wheat from America. Now that has stopped. Further, tariffs imposed by Mexico and China, are making things difficult for the American meat exporters."

"Oh."

"Yes. Even the American soybean exporters are a worried lot. China buys one-third of the global soybean production and is gradually moving its imports to Brazil. News reports suggest that Trump has imposed or threatened tariffs on $250 billion worth of Chinese imports into America."

"Oh."

"Further, imports and exports are intricately linked. If China and other countries don't earn dollars through their imports, how will they pay for what they import from America?"

"Nobody seems to have explained this to Trump," she said.

"Also, with Chinese imports into America becoming expensive, the rate of inflation is expected to go up. With exports slowing down, and the average American having to pay more for imported Chinese goods, the American economy can well head into stagflation."

"Stagflation?"

"Stagnation with inflation."

"Oh, interesting term."

"Yes. In this scenario, the Federal Reserve of the United States, may have to let go of its plan to keep increasing interest rates."

"So, you are saying, America is entering an era of stagflation?"

"Not immediately. Currently, the economic growth remains pretty decent. But if Trump continues with his hare-brained ideas, stagflation is a possibility."

"What will that mean for us?"

"Well, if the Fed does not increase interest rates or even cuts them, for that matter, it means that the era of easy money which started in 2008, when the financial crisis broke out, is likely to continue."

"So?"

"Foreign investors can continue borrowing in dollars at low interest rates and invest in India. And the stock market can go up even further. Between April and June 2018, foreign investors sold stocks and bonds worth Rs 61,103 crore. But in July 2018, this selling has slowed down to just Rs 2,032 crore."

"Which means the markets have started factoring in the possibility of the era of easy money continuing?"

"Yes. Of course, if Trump decides to stop fiddling around with import duties, whatever we have discussed become useless."

"So, should I continue investing in stocks or not?"

"Well, irrespective of whatever the experts like to portray, it remains very difficult to invest in stocks using global economics."

"So?"

"You should follow the easiest and the best policy."

"Which is?"

"Drink stocks SIP by SIP."

(The example is hypothetical)

Vivek Kaul is the author of the Easy Money trilogy.