Issue: U.S. and China resume trade talks this week. At the same time a naval altercation between the two nations occurred in the South China Sea.
Implication: Both countries flexing their muscle can lead to a collapse in a trade deal, or worse.
Issue: U.S. Gross Domestic Products for Q2 slowed to 2.1% vs. 3.1% in Q1.
Implication: The economy is slowing back to the recent historical levels of 2%. The 2018 tax bill may prove to have been a “sugar high” without the longer term intended growth.
Issue: Near $13 TRILLION dollars in government bonds around the world is paying a negative interest rate. The investor pays the government each year to own a bond from Germany, Japan and others.
Implication: This is putting continued downward pressure on U.S. Gov’t Bond rates. Lower rates mean less dividend income and the lure to take more risk in one’s portfolio.
Issue: The Federal Reserve Committee meets this week to consider whether to lower interest rates. The consensus is 100% that there will be a ¼ % (25 basis points) reduction and some Fed Governors are calling for a ½ % reduction.
Implication: Interest rate reductions are a tool for stimulating the economy, especially during a recession. If you attempt to further stimulate the economy during boom times (i.e. now), you risk running out of “ammunition” to do so when the recession finally hits. That said, several really smart people think a rate cut makes sense.
Issue: The House last week passed a rise in the debt ceiling and a two-year budget.
Implication: Annual budget deficit in the coming years is expected to exceed $ 1 Trillion. The 2018 tax cut and spending desires (from both parties) are the cause. Opinions are split on whether government deficits are as bad as the sound. Don’t try this at home.
Issue: Car dealer lots are chock full of vehicles. After seven years of strong growth, sales are shrinking, and auto makers are laying off workers. The amount of sub-prime auto loans is at an all-time high, while Chevy gets ready to release the first U.S. pickup to top $100,000.
Implication: You can cut a pretty sweet deal if you’re in the market for a new vehicle.
Here’s to a profitable week!
Ron
