China and the U.S. may have come to a realization, regardless of an agreement, that the current tariff war has accomplished nothing beneficial for either country, yet is mounting casualties on both sides and at a time when the global recession needs a lift, not another anchor. There is no shortage of negative news regarding the global economy, as China wrestles with a credit squeeze and Germany tries to overcome an auto emissions scandal, while the U.S. finds itself less and less insulated from the growing global slowdown. Nevertheless, World Trade Organization (WTO) Chief, Robert Azevêdo saw fit to announce that, “The darkening outlook for trade is discouraging but not unexpected.”
Yesterday, the Wall Street Journal (WSJ) reported that, “…forces weighing on external economies have begun to wash back on the U.S.” Tariff induced pain inflicted on other countries has managed to boomerang back at the U.S. in the form of slowing global growth, which has directly affected its own exports and investments. WSJ identified three reasons for the wash back: “First, the rest of the world’s share of global gross domestic product has grown, primarily thanks to China. Second, trade has become a larger share of U.S. output, and foreign sales contribute a growing share of U.S. company profits. Thanks to fracking, oil and gas production has become a major component of U.S. investment, but it is highly sensitive to oil prices that, in turn, respond to global growth. A third reason is that integrated capital markets mean U.S. interest rates depend more heavily on conditions abroad. If foreign central banks ease, that can drive the dollar higher and tighten conditions for American manufacturers. That effect is likely even stronger with rates at or close to zero.”
On Tuesday of this week, the WTO reported that it expects volumes of traded goods to increase this year by 1.2%, well below the 2.6% it had projected back in April and the weakest increase since 2009. Nevertheless, as has become the norm, the stock market ignored a plethora of negative economic factors and focused purely on the possibility of a marginal U.S. agreement with China. An agreement, which at best may remove the tariffs that added to the already growing slowdown and repositions the U.S. squarely at the original starting line, with nothing gained and expensive damage to both sides. The ‘excitement’ caused the DJIA to surge more than 400 points today, before closing just under a 320 point gain. The stock market’s overbought condition remains and the quiver of the year’s two greatest investment forces (company stock buyback programs and foreign investment) continues to dry up.
Even if participants are able lick their wounds and return to pre-trade war conditions, there is little, if any, expectation of a comprehensive agreement addressing the biggest reason for the trade war in the first place, an end to China’s intellectual property violations and cyber-crime issues. Meanwhile, the chest-pounding continues on both sides and the disruption does nothing but serves false market excitement and a continuing slow bleed of global economic growth. Savvy investors, on the other hand, are taking advantage of today’s lower metal prices that historically advance during economic times of recession. Call the experts at American Bullion for assistance at (800) 653-GOLD (4653).
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