Thursday, January 31, 2019

This Morning's Log Entry

Foreign data came in mixed overnight, with China’s PMIs suggesting that its slowdown may be finding a bottom, and Eurozone GDP numbers looking okay, save for Italy, which remains ugly.

The Fed has pulled off a complete 180 vs where it was in October. Yesterday’s message was perfectly clear: the Q4 correction in stocks and the markedly slowing global economic backdrop has them telling the world that they have no stomach for being part of the problem. I.e., there’ll be no monetary tightening amid all of the present uncertainty. That provides a strong tailwind for stocks going forward.

The President this morning tweeted that there’ll be no trade deal until he meets with Xi later this month. While I didn’t notice any strong reaction in the markets to the tweet, I view it as simply Trump positioning himself to ultimately announce a “great” deal that he himself hammered out in the 11th hour.

While there’s no doubt that the trade issues the U.S. has incited with virtually all of its trading partners is the chief cause of the global growth slowdown we’re witnessing, ironically, it is therefore the reason the Fed has pivoted to its now dovish posture. Thus, as long as a “deal” is struck with China, equity investors may look back a year from now and applaud the whole experience.

Longer-term, if the U.S.’s latest global posturing is a harbinger of things to come, its leadership on the global stage will absolutely wane markedly in the years ahead; which will present all manner of challenges for us with regard to the dollar, U.S. deficits, the debt and equity markets, and, thus, our asset allocation decisions when the time comes.

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