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Today's Commentary
 
Saturday, July 20, 2019


Sure, Fed Chair Jay Powell threw investors a bone last week when, in his testimony, he hammed up the notion that there are clouds on the horizon that must be kept at bay with lower interest rates. And it didn’t hurt that the Fed minutes released showed that other Fed governors shared that view. The news gave investors the confidence they needed to drive the markets to new highs, even as the Atlanta Fed’s GDPNow model showed second-quarter GDP dropping by 50% from the first quarter to just 1.5%.

But all of that is so yesterday!

It’s a new week, and while we wait for earnings and retail sales, which should give us a clearer look at what’s happening with consumers and in Corporate America, we can sit back and watch the political cage match shaping up between President Trump and “the Squad,” freshman Congresswomen Alexandria Ocasio-Cortez (D-NY), Ayanna Pressley (D-MA), Rashida Tlaib (D-MI), and Ilhan Omar (D-MN).

We don’t have to take sides, we just have to keep the popcorn and soda flowing.

It looks like President Trump wasn’t content to let the Squad duke it out with Speaker of the House Nancy Pelosi, who they accuse of putting them in a corner to keep them busy and out of her hair as she tries to herd the cats of the Democratic caucus.

But as interesting as that sideshow is, we’d better keep an eye on Asia.

China’s Triple Whammy

China reports GDP, and if it comes in at 6.2% as expected, then it would be the lowest quarterly GDP reading in 27 years, and could drive their annual growth to 6.2%, which would be the lowest yearly total in 30 years.

Needless to say, things aren’t going well for the Middle Kingdom’s economy.
While Trump is busy goading the Squad, he’s also causing headaches for Chinese President Xi, whose
country went on a debt-fueled bender for the past decade and has been trying to ween itself off the sauce for the last 18 months, but to no avail.

The double whammy of less credit and the trade war appear to be too much to take, so Xi and the People’s Bank of China (PBoC) have been busy trying to create more lending without overdoing it by letting local governments borrow more than they can possibly repay.
With the Fed lowering rates and the ECB ready to take more stimulative action, the PBoC will be out of step if it doesn’t do the same.

The triple whammy of rising debt, weak growth, and a trade war is becoming a real downer for the nation.
If China stumbles further, their slowing economy could drag the world into a recession, and that wouldn’t be fun for anyone.

With U.S. equity markets at all-time highs, make sure to pull yourself away from @realDonaldTrump once in a while to check on the economic reports out of China.
You might find a good reason to take some profits off the table, just to be cautious. Then you can go back to enjoying the American political circus without worrying about your investments.

Be sure to investigate our 1%@Risk model portfolios custodied at Lincoln Trust. 
  


 
 
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