Oh wasn’t 2018 a jolly year, a marvelous continuation of the glorious economic bull run of 2017! At first, it was the magnanimous corporate tax cut that helped corporate America’s profit margins soar instantly, eclipsing the expectations of the nerdiest analysts on Wall Street. Then, it was Mr.President violently riling Washington up from its deep slumber to inform Congress about a renewed threat to US security– CHI-NA! Indeed, it comes as no surprise as the current administration has succeeded in inflating the economy to the point that only one dialogue emanates throughout corporate and economic America: American Greatness first, all others can go to hell.
US investors and consumers have distracted themselves so much with domestic economic growth and expansion that they have become oblivious to international trade politics. Alright, my fellow Americans, I understand that there are no greater nations in terms of wealth and power than the US, but there is one noble truth that we all abide by Ignorance is an epidemic that quitely infests the prey it will consume. Such is the predicament of the US, dragging itself into the bitter cusps of economic recession. 2019 is going to harken back to the ages of economic deceleration and recession for a variety of reasons:
1. China’s industrial growth is decelerating: In terms of the inflow and outflow of capital, there is no largest bilateral trade agreement than that between the US and China. In 2017, the total trade between these nations amounted to USD $710 Bn, with Chinese exports constituting a hefty USD $522 Bn of the total amount. In recent months, the Chinese economy has posted growth margins below forecast. This has already caused several rounds of massive selloffs in the Chinese equity markets. Many may ask how a slowing Chinese economy is toxic for the US– the US and Chinese economy are interdependent. Thus, slowing growth in China equates to slowing demand from American consumers or demands below forecasts. As this problem continues, it is sure to intensify by mid-2019.
2. The Chinese can retaliate with bonds! Make no mistake but the Chinese government possesses over a trillion dollars worth of US bonds. There have been instances where bond yields have risen sharply on Wall Street and caused pandemonium throughout the stock market. My suspicion is that some of the selloffs in bonds are being done by the Chinese. The Chinese can’t punish the US with import tariffs as they import about a fifth of what they export to the US; they are weaponizing the bonds they own, and this could mean more fluctuation in the market in the near future.
3. Corporate tax cuts ‘euphoria effect’ is coming to an end, and American Large Caps are finding themselves unable to deliver according to analyst expectations. When President Donald Trump passed the corporate tax cut, the world saw him as a benevolent revolutionary who was ushering a brand new era of American big business global domination. Little did most people realize that the fiscal stimulus of tax cuts sustain for a few quarters at most until their effects start to wane. Across the board, across all sectors, American corporates are already decreasing their revenue and sales guidance for the upcoming quarters. The brevity of economic relief introduced by the tax cuts, once gone, will be replaced by quarter after quarter of disappointing sales and revenue by American giants.
It is time to be fearful of the economy and keep one’s liquid assets to themselves instead of sending them off on a lost cause towards the treacherous doors of the stock exchanges. The current investing atmosphere is hostile. Americans should prepare themselves for an economic recession as early as late 2019; that means keep your cash to yourselves and sit tight, and laugh behind the backs of fanatics talking about the ‘great American economy’. It pains me to see the economy drifting off into a state of shambles, but without instituting a policy change, the course for an upcoming recession is set. Let’s end with some solace from the Oracle of Omaha: Be greedy when others are fearful and fearful when others are greedy.