“Trade war! Trade war! Not afraid of outrageous challenge! Not afraid of outrageous challenge! A trade war is happening over the Pacific Ocean! If the perpetrator wants to fight, we will beat him out of his wits.”
– Zhao Liangtian, from his trade war theme song that went viral in China
“…the use of iPhones, driving in American automobiles, eating at American fast food restaurants, using American household products, and traveling to the U.S. is forbidden by a new company policy; any employee who violates the new rules will be fired.”
– Jinggang Motor Vehicles Inspection Station
“Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute.”
– Donald J. Trump on Twitter
SUMMARY
With U.S. stocks at all-time highs and bond yields low-to-negative, coupled with decelerating global economy and corporate earnings under pressure, we are witnessing the most unusual investment circumstances in recent history.
Based on the last decade of experience, most investors appear confident that the Fed and other central banks will once again do whatever it takes and not allow the bottom to fall out from economic growth or financial markets. As yields plummet, investors seeking to maximize returns are forced into higher risk assets like stocks, further depressing their forward return outlook.
If the Fed cuts interest rates and manages to achieve a soft landing for the U.S. economy and the current economic slowdown is a temporary soft patch rather than a recession, then investors will avoid the worst-case scenario outcome.
However, if the U.S.-China trade war carries on into 2020 with no resolution and the global economy slides into a recession, investors who have been chasing yields particularly in growth stocks and junk bonds will find themselves in the proverbial hot seat and in danger of having their wits beaten out of them.
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PLEASE NOTE: ABSOLUTELY NOTHING IN THIS ARTICLE SHOULD BE CONSIDERED AS INVESTMENT ADVICE OR RECOMMENDATION REGARDING THE SUITABILITY OF ANY INVESTMENT. FOR MORE INFORMATION PLEASE REFER TO DISCLOSURES.