It is right within our expectation that Fed yielded to public and political pressure to cut-rate as announced on August 1st, Thursday morning (Asian time). However, the market reacted with weird responses. Both the equity market and gold prices dropped dead, while USD rose unexpectedly.
The only explanation would be that market was disappointed with such a small cut or the way Powell announced their rate cut intention. I expected such a market drop would be very minimal. The most was only for a day drop. It has no fun at all.
However, on the second day, Trump kicked drop the market further by announcing another tariff hike of 10% for the rest of 300 Billion of Chinese import starting from September 1st. This announcement shook global market further drop severely.
The world is now waiting for Chinese retaliation measures. But the market impact could be minimum even if it does unless China takes a bold and drastic step to retaliate the USA. But I think chances could be very mild because China is running out of ammunition.
As expected, economic commentators began to predict this further tariff hike will impact the global economic growth by interrupting global supply chain. Global economic slowing down will be the next on the card. Though the US is currently the only stand-alone healthy economy in the world, they would say it wouldn’t last. Sooner or later, global economic woe will arrive the American shore. Do you dare to invest in US market?
This is the greatest challenge to all investors right now. Online research will easily find many negative comments and predictions about US economic outlook. But all major US stock markets are reaching new historical heights recently, are we going to hear these gloom and doom commentators or are we going to follow messages given from stock indexes?
As for me personally, I would refuse to follow the crowd’s opinion. As legendary investor Warren Buffet has always advised investors to have a reverse thinking. Where everyone is saying the market is good and jumps in, it is the time we should leave. If on the other hand, when everyone is frightened of the market and saying it is bad time for investment, we should jump in. Precisely, this “dangerous” investment moment will be the best time to “jump” in. Because there will be very few speculators creating market panicking disturbances now.
Fear of Economic Slowdown
The global economic slowdown could have been too much exaggerated based on emotional view without specific rational figure supporting. The trade war initiated by Trump could have diverted the global business relationship between different countries. The world is adjusting itself. All countries in the past have been too much relying on the US. But now they realize they can not look up to US anymore. They are now realigning their business relationship with each other. And therefore, arrival of the global recession is still having a distance.
As for the US economy, I also believe that commentators might have made mistakes in predicting gloom and doom future. Trumponomics might have been attracting US capital flowing from around the globe back into the US homeland. The corporate tax cut implemented since 2017 make US businesses more conducive in the US homeland itself rather than importing from overseas.
Tariff hike for the Trump’s foreign policy is also another hurdle in placed to discourage importing from overseas. This is to counter dealing with trade imbalances with foreign countries. I do not want to comment the ethical issue of right or wrong when Trump’s protectionism is at work. But I see this is happening in the US and why the US can stand alone as alone healthy economy where the rest of the world are crying slow down or facing the cliff of recession.
Can we invest in US market?
You might fear what if global recession woe arrives on the US shore?
I have another good perspective for you； Trump is yet to roll out another most powerful weapon for his election campaign yet. If it is necessary, Trump could roll out individual income tax cut from the bottom rate of 10% to say 5% after he is elected as the next president. This tax cut can be easily implemented because Trump’s administration has been receiving additional import tariff ever since he became the US president.
In short, the US still has many more weapons to fight against any economic downturn. If this is true, what will you afraid?
Market drop from last week was good as it opens a new opportunity for late party comers but wasn’t large and attractive enough. And I hope China will roll out its retaliation measure next week or so and hopefully it can bring the global market down further in order to make the market more attractively cheap.
If this happens, will you want to miss this precious window of investment opportunity? For my fund recommendation, please refer back to my previous blog.
Do you want to look at this trade war dispute as a financial crisis or precious window of opportunity? The answer is all up to you.
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The view and opinion expressed are personal
views of the author and are subject to change based on market and other
conditions. This write up does not constitute sole advice for investment
decision. Investors are advised to do further reading and research to conclude