Two prominent investors, Ray Dalio and Jeffrey Gundlach gave their two cents on the economic outlook ahead of 2020. In essence, both of them are playing defence as of now because of the debt issue in US in addition to quantitative easing. Gundlach also pointed out that there is a corporate bond crisis looming and the debt levels as of now are twice the amount during the 2008 financial sub prime mortgage crisis. The burning question to many investors right now is when will the recession hit? Also, what is holding back the recession. In this post, I will summarise the nuances between the market and the economy.
The coming of a recession has been mentioned multiple times on our site. Previous posts mentioned about rising national debt (problem) and populism (trigger). At present, these issues seems to be less severe because of the festive season. In the mean time there are still some issues brewing, which might turn the tide.
1. Developments in Trade Talks
The upcoming tariffs will go live on 15 December if there are no changes made on Saturday. Although there is some progress made in the recent trade discussions, some sceptics are still expecting the tariffs to move as planned. In other news, Trump has tweeted again reporting good news. On official channels, both US and China are not sharing any further details of their negotiations.
From my point of view, Trump is at an excellent position to keep the US markets rallying. For starters, he has already demonstrated that he could make the market crash last December using drastic measures. That showed the world that US is able to destabilize market conditions and affect many countries growth rates. In such case, countries understand that they have to play along with the US.
2. Why does “the world” wants Trump to win election
Technically speaking, Trump has a much higher likelihood to win the next election if the US economy continues to thrive. Since we are at an all time high situation now, it will be hard to guess how much higher can the markets rally towards in the months or years to come. But however, there is an added incentive for Trump to settle the trade disputes with China to make his home run. Hence, my best guess is for Trump to keep the US economy going until at least November of next year while trying to negotiate terms with China as a his main job.
3. What good does a recession do to any country?
No single person would like to experience a recession especially when they have money tied to the markets or if they are earning paycheck to paycheck. If it so happens that a democrat is elected, there will most likely be a recession because of the drastic measures of taxation. Furthermore, this deeply entrenched denial is the main driver of the market thus far and it will continue so long as there is political stability. As far as any markets are concerned, instability tends to be priced in way before the actual news kicks in. We will be able to expect some form of recovery in the near term if Trump decides to hold back on 15 December tariffs.
Closing Thoughts
We have been going through this cycle of fear and hope throughout Trump’s administration and it looks like it will persist. Looking at US market’s irregular rallies fueled by rate cuts and newly printed monies, it seems to be a ticking time bomb for US markets as of now.
