In October 2018, the value of China's exports to the United States reached an all time record high of $52.2 billion. Although the tariff war between the two nations had begun in earnest six months earlier, Chinese exporters raced to beat even higher tariffs that would take effect in 2019, artificially inflating the country's exports figures in the final months of 2018.

One year later, measured against that unusually high mark, the value of China's exports to the United States has crashed thanks to those higher tariffs. The total value of China's exports to the U.S. was $40.1 billion in October 2019, a 23.1% year over year decline.

The large percentage decline in the value of China's exports to the U.S. is very evident in our chart tracking the exchange rate-adjusted, year-over-year growth rate of the two nations' exports to each other.

Curiously, U.S. exports to China are only slightly lower in October 2019 than they were a year earlier, which is attributable to China's strategy of targeting U.S. soybeans early in the tariff war. China's tariffs on U.S. soybeans in 2018 led Chinese importers to effectively boycott the U.S. crop that year, where a year later, very little additional negative effect is being observed from what might be considered to be China's most effective retaliatory tariff to date.

That's despite China waiving its tariffs on both U.S.-produced soybeans and pork in its attempt to undo some of the self-inflicted damage related in part to some of the unintended consequences of its tariff war strategy. Unfortunately, the nature of that damage is such that China's short-term demand for soybeans has been greatly diminished, with at least 41% of its domestic hog population lost to African Swine Fever. China won't need to import the kind of quantities of soybeans it was prior to the tariff war for several years, where it may be able to get by with soybeans exported from the world's second and third-largest soybean producers, Brazil and Argentina.

Our final chart shows how large the combined loss of trade between the U.S. and China is when measured against the counterfactual for how great it could be, if not for the tariff war.

Here's the takeaway comment from the chart: In October 2019, the gap between the pre-trade war trend and the trailing twelve month average of the value of goods exchanged between the U.S. and China expanded to $14.2 billion. The cumulative gap since March 2018 has grown to $101.2 billion. As you can see in the chart, the magnitude of actual trade losses from 2018 to 2019, as measured by the rolling 12-month average indicated by the heavy black line, exceeds the actual trade losses that were recorded from 2008 to 2009 during the Great Recession.

The S&P 500 (Index: SPX) continued its record-setting spree in the first week of December 2019, ending the week at a new all-time record closing value of 3,145.91.

Although some market observers are claiming the S&P 500's rising trend is attributable only to rising valuations, with the index' Price/Earnings (P/E) ratio reaching up to its highest levels since 2001 without a proportionate increase in earnings, that's missing the point that earnings aren't what drive stock prices. Expectations for future dividends are what do, and they've been rising throughout much of 2019-Q4, with stock prices coming along for the ride.

As of the close of trading on Friday, 6 December 2019, we find the level of the S&P 500 is right in the middle of the range of the redzone forecast provided by our dividend futures-based model would set the index, assuming that investors are focusing on the distant future quarter of 2020-Q3 as they go about setting current day stock prices.

2019-Q3 has become a focal point for investors because that's when investors are anticipating the Federal Reserve's next action on interest rates, with the CME Group's FedWatch Tool currently projecting at least a quarter point rate cut taking place in September 2020:

The FedWatch tool is also now projecting another quarter point rate cut taking place before the end of 2020, but it wouldn't take much to move the probabilities enough to generate the anticipation of a half point rate cut taking place during 2020-Q3.

That's not to say that investors will maintain their focus on that distant future quarter over all the time between now and its end. They could shift their attention toward another quarter in the future, such as 2020-Q2, which would address the market analysts concerns about high P/E ratios for the S&P 500, since that change in how far into the future investors are looking would be accompanied by a fall in stock prices.

Such a change would be driven by the onset of new information. Speaking of which, here are the major headlines we noted for their market moving potential during the week that was.

Monday, 2 December 2019

• Warning signs for U.S. economy:
• U.S. oil output growth slows: just how much is anyone's guess
• U.S. factory sector contracts again in November: ISM
• New tariffs, old tariffs:
• Trump, citing U.S. farmers, slaps metal tariffs on Brazil, Argentina
• U.S. may increase tariffs after WTO rejects EU claims over Airbus
• China wants rollback of tariffs in phase one trade deal with U.S.-Global Times
• Bigger trouble developing in the Eurozone:
Euro zone factory activity shrank in November but worst may be over: PMI
• Bigger trouble developing in South America:
• Chile's economy posts biggest drop in decade as protests bite
• Argentine steel industry chamber says U.S. tariffs would hit production, employment
• Chinese stimulus gaining traction?:
• China's factory activity surprises with fastest expansion in three years: Caixin PMI
• U.S. stocks retreat on economy and trade jitters

Tuesday, 3 December 2019

• Oil steadies after slide on Trump's U.S-China trade comments
• Multi-front tariff wars and trade negotiations:
• Trump signals trade deal with China could be delayed until after 2020 election
• U.S. vows 100% tariffs on French Champagne, cheese, handbags over digital tax
• EU ready to respond to U.S. tariff threat on France: Le Maire
• Bigger stimulus developing in Japan:
• Japan preparing $120 billion stimulus package to bolster fragile economy
• Wall Street falls as trade hopes wane

Wednesday, 4 December 2019

• Oil jumps 4% on U.S. stockpiles drop; further OPEC output cuts seen
• U.S. service sector slows more than expected in November
• Trump to sign U.S.-Japan trade deal proclamation next week: trade representative
• Bigger trouble developing in Germany and China:
• German car industry expects more job cuts in 2020
• German services sector growth stays anemic: PMI
• China capex growth hits three-year low as weak economy, trade war drag
• Bigger stimulus developing in China:
• China to implement more policies to stabilize jobs amid growing pressure
• Wall Street bounces back on renewed trade optimism

Thursday, 5 December 2019

• Trade data and negotiations:
• U.S. trade deficit shrinks sharply; labor market tight
• U.S.-China trade talks are 'on track': Mnuchin
• Trump threatens trade action to spur NATO contributions
• Bigger trouble developing in the Eurozone:
• Euro zone growth curbed by trade, retail sales sharply down
• Bigger stimulus developing in China:
• World Bank adopts $1 billion-plus annual China lending plan over U.S. objections
• Wall St. barely gains as investors wait for trade progress

Friday, 6 December 2019

• Oil rises sharply this week as OPEC+ agrees on deeper output cuts
• Strong U.S. job growth showcases economy's resilience
• Returning General Motors workers seen boosting U.S. November payrolls
• Don't touch that dial! Traders see Fed on hold until after 2020 election
• Fed voters a less-hawkish bunch in 2020, lowering bar for U.S. rate cut
• Reading the tea leaves in U.S.-China trade negotiations:
• Trump will make final call on China tariffs, likes direction of talks: Kudlow
• China to waive tariffs on some U.S. soybeans, pork in goodwill gesture
• Bigger trouble developing in the Eurozone:
• German industry slump sparks renewed economic growth fears
• Wall St ends higher after jobs report, trade optimism

Over at The Big Picture, Barry Ritholtz succinctly summarizes the positives and negatives he found in the week's economics and market-related news.

Have you been saving for retirement and are now ready to retire? What would happen if you withdrew a fixed percentage of the value of your retirement investment once a year for the rest of your life, if that investment was in the S&P 500? Would that provide enough money to pay for the things you might want to buy with it after you no longer have an income from a job? Or might market volatility force you to reconsider your options?

These are difficult questions to answer, because the future is very much an undiscovered country, where chaos controls both the timing and magnitude for when and how much market volatility might erupt.

But if we assume the unfixed future might be like the past, we can test how well a strategy to only withdraw a fixed rate of money from such an investment would have fared using the S&P 500's rich history of data during its most turbulent episodes.

And that's what we've done with our latest tool, where you can see how well you could count on your investment in the S&P 500 would have fared for up to 40 year long periods if you had chosen to retire in any month between January 1871 and 40 years before the present* while fully reinvesting your dividends along the way. If you're accessing this article on a site that republishes our RSS news feed, please click through to working version of the tool at our site.

For our tool's default settings, we've chosen September 1929 as the time of the first withdrawal, because this month immediately precedes what happened with the U.S. stock market at the onset of the Great Depression. If your S&P 500 cash out strategy can survive the sustained series of disruptive events that followed this month and provide sufficient funds to support your needs, you can reasonably expect to weather any lesser event.

For good measure, you might also want to consider how your retirement might fare if a market crash occurred well after you've retired. You might choose a date that includes the years of the Great Depression or you could choose the more recent disruptive event of the Great Recession of 2008-2009 by selecting a starting year in the range of the late 1960s through the late 1970s. The maximum length of time the tool will consider for your S&P 500 withdrawal strategy is 40 years.

The tool's results indicate the value of your investment in the S&P 500 before and after your annual withdrawal, along with our estimates of the total amount you would have withdrawn over the number of years you've selected, the average amount of your annual withdrawals, and also the highest and lowest values of your annual withdrawals along with the years in which they would have occurred. Meanwhile, the tool does not consider things like taxes, commissions, or fees, which would most likely be taken out of any money you withdraw if they apply.

* Like our S&P 500 At Your Fingertips and Investing Through Time tools, we plan to periodically update this tool, with the first update in the first quarter of 2020 after the S&P 500's data for 2019 is finalized, and then once a year afterward, which will allow us to roll in new 40-year long periods.

References

The tool above really doesn't say anthing about what a "safe withdrawal rate" for you may be. For that kind of insight, do check out the following resources on the topic, which you might find useful.

Where our tool is concerned, so long as you select an annual withdrawal percentage rate of less than 25.0%, your investment will effectively last forever because there will always be some fraction remaining in your investment from which you can withdraw some percentage of it in future years, even though the withdrawal amounts may become vanishingly small, which can be considered the investment math version of one of Zeno's paradoxes.

In practice, you may find it extraordinarily difficult to resist raising the percentage of your investment that you cash out in years where market volatility might crash the amount you would withdraw if you otherwise maintained a fixed percentage rate of withdrawal, where you would intervene to reset that withdrawal rate because you've come to value having cash today more than whatever potential investment value you might have tomorrow. If you need cash to cover your living expenses in retirement or in times of severe economic distress, where your ability to earn income is very limited, it's very understandable.

Our tool can accommodate that kind of decision making. Just update it with the value of your investment at the starting month where you would need to adjust your withdrawal rate, and see what happens next. Then adjust it again at later dates as you might need.

Image credit: Max Harlynking

Celebrating Political Calculations' Anniversary

Our anniversary posts typically represent the biggest ideas and celebration of the original work we develop here each year. Here are our landmark posts from previous years:

• A Year's Worth of Tools (2005) - we celebrated our first anniversary by listing all the tools we created in our first year. There were just 48 back then. Today, there are nearly 300....
• The S&P 500 At Your Fingertips (2006) - the most popular tool we've ever created, allowing users to calculate the rate of return for investments in the S&P 500, both with and without the effects of inflation, and with and without the reinvestment of dividends, between any two months since January 1871.
• The Sun, In the Center (2007) - we identify the primary driver of stock prices and describe a whole new way to visualize where they're going (especially in periods of order!)
• Acceleration, Amplification and Shifting Time (2008) - we apply elements of chaos theory to describe and predict how stock prices will change, even in periods of disorder.
• The Trigger Point for Taxes (2009) - we work out both when, and by how much, U.S. politicians are likely to change the top U.S. income tax rate. Sadly, events in recent years have proven us right.
• The Zero Deficit Line (2010) - a whole new way to find out how much federal government spending Americans can really afford and how much Americans cannot really afford!
• Can Increasing the Minimum Wage Boost GDP? (2011) - using data for teens and young adults spanning 1994 and 2010, not only do we demonstrate that increasing the minimum wage fails to increase GDP, we demonstrate that it reduces employment and increases income inequality as well!
• The Discovery of the Unseen (2012) - we go where so-called experts on income inequality fear to tread and reveal that U.S. household income inequality has increased over time mostly because more Americans live alone!

We marked our 2013 anniversary in three parts, since we were telling a story too big to be told in a single blog post! Here they are:

• The Major Trends in U.S. Income Inequality Since 1947 (2013, Part 1) - we revisit the U.S. Census Bureau's income inequality data for American individuals, families and households to see what it really tells us.
• The Widows Peak (2013, Part 2) - we identify when the dramatic increase in the number of Americans living alone really occurred and identify which Americans found themselves in that situation.
• The Men Who Weren't There (2013, Part 3) - our final anniversary post installment explores the lasting impact of the men who died in the service of their country in World War 2 and the hole in society that they left behind, which was felt decades later as the dramatic increase in income inequality for U.S. families and households.

Resuming our list of anniversary posts....

• The Toolmaker's Tool (2014) - we make the code we use for creating online tools available to all!
• Replacing GDP with the National Dividend (2015) - we explore our development of an alternative measure of economic welfare that can replace GDP.
• The Gamblers Who Invented Modern Encryption (2016) - we discover that a group of gamblers seeking to break the law in Missouri back in 1905 put together many of the elements that underlie secure electronic communications and financial transactions in 2016!
• The Isolation of El Niño (2017) - in which we advanced the development of a global economic indicator for Earth!
• Telescoping Median Household Income Back in Time (2018) - we find a way to nearly double the available supply of monthly median household income estimates with reasonable accuracy.
• Cashing Out of the S&P 500 (2019) - we develop a tool to answer the question of whether you can survive being retired if you're counting on cashing out your investment in the S&P 500!