The concept of ‘America wins always and everybody else loses’ is the mantra of the current U.S economy. Yet, there remains one major caveat: there is no space for a single victor in the modern global economy. And yet we see Uncle Sam unable to keep his mouth shut about other countries trying to take over the U.S economy. The truth is, folks, the American economy has become paranoid about foreigners in an age of rapid globalization, and instead of attempting to bridge economic gaps between nations, is reverting back to the archaic methods of trade protectionism. Ultimately, this has only succeeded in instilling fear across Wall Street. As of the current time, the three primary US stock indexes, the SP 500, Dow Jones and the Nasdaq Composite have posted their worst quarter-quarter results within the last few years. During the previous week only, investors withdrew a staggering USD 39 bn from US stocks, starting a flurry of selling that has left the exchanges dry and negative for the year. We must accept that something is horribly wrong with the U.S economy– otherwise, we are merely digging our financial graves like back in 2008.
One of the chief reasons we can’t deny is the slowing down of major economic and manufacturing powerhouses, like Germany in Europe and China in the East. Both China and Germany have recently reported economic and manufacturing figures below estimates, sending their market a couple notches lower. One additional indication that global growth is the recent slide in oil prices. Now, it may be true that Mr. President has always expressed contempt towards high oil prices and ordered large increases in US oil production throughout much of 2018, but just that is not enough to justify a 20% slide in oil prices in just over 2 months. The concept of Trumponomics that has proliferated supporters of the ‘great again’ campaign claim that America is an independent entity away from the harm of a global slowdown– that is a story possibly crafted by the Kremlin, or some of the ther commies.. Nothing can be more fake than denying America’s dependence on foreign trading partners. It is high time that our politicians stop babbling and arguing with foreign governments and bring some sense into the negotiation table. A slowdown in an economy like China should a dangerous prospect for America and one America must try to help resolve in order for its own economic prosperity.
Number two on the list is the over-inflated tech sector of the US bourse market. Throughout much of this year, it was the star on the varsity investing team, a member who had started under the shadows of the more prominent manufacturing industries and proven itself to be top dog over the years. However, the valuation premiums investors were willing to pay for these companies was nothing shy of absurd. Investing had become such child’s play that people were starting to question the need for the suited, frankly self-inflated investment nerds from Wharton; dreams of windfall, get-rich-quick, profits from the stock market had become tangible all of a sudden. The massive profit margins and increases in revenue became the vodka shots that had intoxicated most investors and disabled them from making intelligent decisions. In the end, the drunk blokes on Wall Street passed out as they left their heaping piles of cash inside these ‘trustworthy’ tech stocks. If we take a look at the recent slides in the tech industry, they are sure to stun anyone– Apple down 30%, Amazon down 20% and Facebook down 35% within the span of a single quarter. This goes to show one thing– expectations were too damn high and investors too damn high on drugs of profit margins! The burst of the tech bubble will likely trigger sell-offs in other industries as investors yank their capital away from Large and mid-cap US shares.
Thirdly, investors are already cradling themselves into their mothers’ arms; bond yields are at an all time low and unlikely to rise very quickly. Bond values decrease when demand increases, and they are considered the most safe investment class. People don’t seem to be willing to take as much risk in company stocks anymore. In addition, investors get spooked by tiny interest rate hikes by the Fed; this shows that most investors fear that corporate spending is out of control. If corporates are spending loads of capital and piling on debt, the current scenario doesn’t look rosy at all for them. With tax cut benefits coming to an end, an active trade war and rising interest rates, these corporates are going to be in plight to pay off debt. That, in the end, is going to result in production and workforce cuts and lower revenue, which is definitely going to send hopeful investors for a rollercoaster ride through financial hell. Ultimately, a weak and damaged investor sentiment is going to lead to more massive sell-offs in the future that is going to ripple through every single sector of the US bourses.
The fast rise of the greenback(US dollar) is further deepening the grave for the current bull run. A stronger US dollar spells destruction for global trade as American products cost more to other nations; this is further intensified by the fall of currencies in the Eurobond and in China. Ultimately, US companies are going to experience lower sales and demands as their products simply become too expensive for other nations. A rise in the greenback may be good for your retirement fund and personal savings, but it sure does damage the global trade supply chain. Ultimately, the US is going to lose out as other nations bolster trade relations with each other while leaving te US out. President Trump should pay attention to the quick rise of the greenback and he should regret it rather than boasting about ‘American dominance’ in global currency because that’s the same thing as: don’t buy our stuff cuz’ its too expensive.
A recession is definitely on the horizon, and as investors it must be our priority to safeguard assets during this time. Otherwise, strap yourselves in for a decade long descent and rise through economic ruin. The current economic figures are hiding the truth from us– they are just financial propaganda that’s tempting investors to put more money in this downhill market. Take your mind away from these figures and think simply while considering global trade– it’s a grim picture that you don’t want to be a part of.