One-Two Trade War and Fed Policy Punch May Trigger Correction
Maybe you’ve seen this scenario before: A boxer gets back up after violently being knocked down, only to get knocked out shortly after.
After recovering, the Dow now seems to be struggling to “stay up” since the end of April. Could this mean we are headed towards another major correction?
Because of recent developments in the U.S.-China trade wars and Fed monetary policy, Frank Holmes seems to think so, writing in Forbes:
So let’s examine the “one-two” punch that may trigger this “significant correction”.
China Calls Out U.S. for “Wrong Actions”
According to Evelyn Cheng over at CNBC, POTUS recently increased tariffs on $200 billion of Chinese goods from 10% to 25%, and put telecom provider Huawei on notice.
Cheng quoted Ministry of Commerce spokesperson Gao Feng as saying:
Feng finished by issuing a strong warning at the end of the article…
The increase in tariffs has already had a major impact on international trade according to a recent IATA report, with growth dropping sharply by more than 3.5% since the tariffs were imposed (see chart):
In the U.S., the tariffs are impacting companies like UBS, which is projected to close 12,000 locations resulting in an estimated loss of $40 billion, according to the Forbes article. The resulting job losses and economic impact would be staggering.
As for companies operating in China, according to an official survey, the impact increased tariffs have had is dire:
These tariffs are likely hitting consumers in their wallets too. According to a Goldman Sachs chart shared on CNBC, nine consumer categories were hit particularly hard by increased tariffs:
But that’s not the only punch the economy is taking, as Fed Chairman Powell may also provide a potential monetary policy “haymaker.”
Fed Monetary Policies May Trigger Even More Trouble
But as usual, their reporting excludes some costs…
Food and energy are pretty important inflationary items to be ignored, especially if the trade wars trigger a situation where inflation gets out of control.
According to official sources, inflation actually sits at 2.1% and is on the rise, despite Chairman Powell’s attempts to minimize it. Real inflation, reported at ShadowStats using older methodology, sits closer to 6%.
It looks like this one-two punch of Fed policy and trade war negotiations may cause inflation to “run hot” in the near future, as Powell previously alluded to in March.
Not a good outlook if it all plays out.
The U.S. Economy May Struggle to “Get Back Up” This Time
We are riding through a turbulent market on the cusp of a rapid inflation increase. Markets like this can do damage to retirement portfolios that aren’t resilient enough.
Diversifying assets, considering various investment channels, and lowering risk exposure are tried and true ways to protect portfolios.
Assets such as gold and silver should be considered for any portfolio “resilience” plan. As shown in the Oxford Economics chart below, gold is known for its ability to outperform other assets during inflationary markets:
Even Frank Holmes brought attention to gold’s performance during times of high inflation, saying this is a favorable climate for the yellow metal. But don’t wait till after inflation has run too hot. The time to seek out the security and benefits of safe haven assets is now.
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