In the words of the great Aerosmith, “Talk about things that nobody cares,” is precisely related to the title of this article and very aptly named after the band’s 1975 Top 40 hit, “Sweet Emotion.”
In mid-August, a well-known economic indicator surfaced that historically has predicted a future economic downturn. This indicator is known as the dreaded “inverted yield curve.” In layman’s terms, this is when the yield on the ten-year U.S. Government bond is lower than the two-year U.S. Government bond. Historically, it is a sign that people are willing to lock in their money for a long time (ten years) at a very low interest rate when they can get the same or better interest rate on a two-year note.
When the mainstream media caught wind of the fact that something pointed to the chance that they could pierce Trump’s narrative surrounding the positive economy, it seemed as if they called up every economist they could find and put them on the air to explain why President Trump’s “terrible trade negotiations” with China are leading the world into a recession, and causing this inverted yield curve. I can’t count the number of phone calls I received from clients asking if we are heading straight into a recession and if they should change course.
In my opinion, the fiscal economic stimulus that was done during 2017 through corporate tax cuts, repatriation of cash from overseas, and the measures that this administration has put into place regarding deregulation could easily be felt for the next few years. The interest rate situation is quite the anomaly due to global weakness outside of the United States. Many other developed nations are charging negative interest rates to encourage corporations to not hold reserves at the banks, but to invest that money in their local economies through lending and business development. Trump’s “America First” policy has done a decent job of ring-fencing the U.S. economy when compared to the slowing economies of China and Europe. I believe that our Federal Reserve is keeping interest rates low and preparing to lower them in the future to help continue to keep the U.S. at the forefront of economic growth as the rest of the world moves into a short-term recession.
Time will tell whether the move that President Trump is making in his trade negotiations with China ends up being in America’s favor. Historically, tariffs are never a great long-term solution to trade issues and typically, harm the economy – but, I assure MCM readers that I don’t believe these are being used as a long-term solution. They are being used as a negotiation tactic trying to force the Chinese government to the table for meaningful negotiations. A new trade arrangement with China is way past due, and unfortunately, President Trump believes that he is the best and only man in Washington qualified to do this job.
I encourage MCM readers to not let the media stoke our emotions into believing anything at this point. There isn’t a media outlet out there that isn’t pushing an agenda. If you watch CNN, FOX, MSNBC, the emotion that all these outlets are trying to provoke is anything but “sweet.” I implore everyone to shut off the TV, go to the local mall, and/or talk to your neighbor. The extremes that are being painted by the media are far from anything I’m finding in reality. Emotions, even sweet ones, can be the enemy of good decision-making … investors will do well to keep them at bay.
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