A sharp disconnect is emerging between
America’s economic reality and Wall Street’s curiously blind optimism
about the future, reflected in another record-setting streak for US
stock prices despite a weakening economic outlook.
US President Donald Trump’s multi-front
trade war has raised recession fears and contributed to a renewed
contraction in US manufacturing activity, forcing the Federal Reserve to
react by reversing course on interest rates and cutting them again
three times this year. The Atlanta Federal Reserve is now forecasting an
alarmingly weak 0.4 percent annualized rate of growth in the fourth
quarter.
Yet stocks are happy to keep on trucking
to new heights on even the tiniest rumor suggesting some progress on the
trade conflict between the United States and China, the world’s two
largest economies.
Long-term investors should be reticent, however.
For one thing, Trump has shown a distinct
inability to stick to even any modest deals he does manage to strike.
After pulling out of the long-standing North America Free Trade
Agreement (NAFTA) with Mexico and Canada and following a painstaking renegotiation,
Trump nearly torpedoed the entire process with a surprise threat, later recanted to introduce tariffs on Mexico based on immigration quotas.
Perhaps, and more importantly for those
concerned about the long-term stability of the global economy, Trump’s
erratic and roughshod behavior has likely damaged the world’s trading
system irreparably.
That is not to say existing trade deals
were perfect. Far from it. Most failed to address crucial issues around
workers’ rights, the environment and even the democratic autonomy of
nation-states. Hopefully, the next US president can and will begin to
take on some of those concerns in earnest.
However, wrecking the system without any plans for what comes next as Trump is doing is even more destructive.
Read more at: There Will Be No Going Back: Wall Street's Confounding Optimism Over An Elusive Trade Deal With China - Emerging Market Views
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