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A Singular Viewpoint

A Singular Viewpoint

Sarah Hsu
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Global Overview, October 11, 2018

The 800+ point drop of the Dow yesterday triggered a global sell-off of all major markets. At this juncture it is best for all of us including the Federal Reserve and the White House to relax and take a deep breath.

First of all, rising interest rates is the key to the normalization of rates as part of a recovering economy. This has been telegraphed since the Janet Yellen days at the Fed and should not come as a surprise.

Furthermore, it is the intention of the Fed to be deliberate in its strategy and it should be opportunistic in taking advantage of a very strong economy so as to accomplish its mission with little pain. Therefore, from our point of view, rising interest rates is positive at this juncture since we view this as the goldilocks moment in the cycle absent of inflation.

However, there is no question that the market is over extended given the fact that we have not experienced a healthy correction for such a long period of time. We are in a technology driven economy and as such these stocks that have performed outstandingly are punished the most in the market downturn. However, at the end of the day it is still revenues and earnings improvement that drive stocks and markets. Fundamentally, we do not see any indication that we are deviating from a technology global driven environment. From our perspective, technology and in particular innovative technology will continue to rule the day.

The fly in the ointment is the unpredictability of US trade policy. Although the intended target is China, the US has decided to undertake a multi-front confrontation. It began with success with Mexico followed separately by South Korea. At the eleventh hour the White House was able to sign a trade agreement with Canada albeit with great difficulty.

However, China is not Mexico or South Korea! During our discussion and negotiation with China which has occurred in fits and starts, we have openly insulted the Chinese by accusing them of being thieves in stealing American technological know-how. This may all be factually correct, but we doubt that it is smart strategy while we are attempting to sit down and negotiate with the second largest economy in the world. Besides, Xi is still very new to his position as the paramount leader of China and if we do not believe that a protracted trade war serves our purpose then we should not keep insulting the opposing party.

In short, the US is experiencing dynamic growth that should be sustainable. There is no inflation in sight. Any possible hiccups could only come from overreaching by the White House’s attempts to rebalance historic global trade relationships.
Previous Article Global Overview, July 13th, 2018
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