At the risk of losing your interest with yet another commentary on the same subject, I feel it worthwhile to offer another few paragraphs on the probably-not-coming-soon recession. Please bear with me.

Oh, I know it’s popularly supported by many in the entertainment world and even some high-profile financial journalists/economists but, I’m here to tell you that there may be ulterior motives in their messaging. Our economy is doing remarkably well and, as crazy as it sounds, that is making some people quite unhappy. You see, there is an election coming up next year and the American public tends to not make changes in the residency of 1600 Pennsylvania Ave if the economy is strong.

Accordingly, in such times, the political fortunes of the opposition may then be dimmed. You can expect they will work hard to avoid disappointment. A recession could then be useful to them but is it on the cards?

Let’s take a look at a worst-case scenario. Technically speaking, a recession has begun when there are two consecutive quarters of negative GDP growth. The next BEA report on GDP will be at the end of October and all forecasts fall between 1.5 and 1.8% growth. So, we already know that whatever the number is it will be positive. The next opportunity for a negative number would then be end of January. The earliest then that we could see a second negative result would be end of April. That’s more than seven and a half months from today. At that point the 2020 election season will be in full swing and the Trump Administration will use every tool in the toolbox to keep the economy humming. Now, there is only a limited amount of humming and tuning one can do if things truly turn south. Let’s zoom out to the 30,000-foot level for a better overview of what is going on and where that could take us.

In paragraph one, I mentioned the presence of doomsayers, but I hasten to add here that none of them are among the major institutional forecasters. So, what ARE the big boys and girls thinking?

The Conference Board — after factoring in a number of headwind factors — is still looking for real GDP growth of 2.3% for 2019 and 2 percent for 2020. Meanwhile the International Monetary Fund is forecasting global growth to expand to 3.5% in 2020. Our Fed has posted expectations of 2 percent real GDP growth in 2020, after having turned in a 1.9 this year. Not a negative number in sight.


Ron’s Market Minute – An End to the Trade War!

Actually, there is no end to the ‘trade war’ and there can’t really be an end because there really isn’t a trade war. Let me take this further. I hope this will end the DISCUSSION about a trade war.

There is certainly a general conception by the public (fanned by the media looking for eyeballs!) that we have a trade war going on. For reference, the Smoot-Hawley bill signed by President Hoover in the 1930’s was a complete tariff of 30% on every product being imported from every country to the USA. That is considered to have been one of the main factors in causing(!) the Great Depression. World trade ground to a halt, and it was a time of economic chaos. 

For comparison, today we have many trade partners in the world. The largest four (in order) are

  • Mexico
  • Canada
  • China
  • Japan

China makes up much less than one fourth of the trade with the US, and the current situation is that a handful of Chinese products have been hit with a tariff. Of note, recently new trade deals have been signed by Mexico and Canada and another has been announced by Japan.  Also, of note, I’ve read that nearly half of the companies that purchase products from China are actively looking for new suppliers. This skirmish, while it makes for good headlines, is nowhere NEAR the actual trade ware from the 30’s. Trade is getting freer, and it is my opinion that within a year this skirmish will be forgotten. 

Our usual advice applies. Turn off the TV!

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
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Phoenix, AZ 85051
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