Morning all,

Just a quick update on the markets and what is going on as many of you have heard the report that the 30 yield curve has inverted and this means there will be a possible recession looming in the coming period. As we have all experienced recently, the markets have been very volatile especially at the beginning of the year when they dropped 10% followed by a very strong upswing of over 25%  surprising everyone and giving everyone’s account a timely boost before the end of the financial year. It appears very much like we are heading towards some strong volatility and I just thought I would give you my view on the coming markets.

As we are all aware there has been a trade war between China and the USA which initially I thought would work itself out and a truce would have been found with common ground around trade and technical issues that started this confrontation. Well unfortunately no side seems to be backing down at this point and it was inevitable that trade would slow and the world economy would tighten and cause cashflow problems. Two of the biggest markets in dollar size and population were always going to slow down if tariff’s were introduced as restriction always cost output in economic activity. You don’t have to be a Rhode scholar to understand that if billions of dollars gets pulled from the economy things are going to stop and that is exactly what is happening at this time. If anything can cause major economic dramas it is trade restriction as this starts with cashflow restrictions on business and then works its way down to the streets and causes consumers to start to stop their spending which adds to the problem and rather quickly.

The problem unfolding at the moment has nothing to do with the time it has been since the last stock market crash or the last recession and the timelines that cause a recession. At this point the USA has a very strong economy with the top companies reporting a very sound profit for the quarter and the year however everything economic is intertwined and once one end start to slow down the knock on effect is always going to happen. The restriction that the USA have put tariffs on have been counted by the Chinese stopping imports of products. The USA have countered with restricting the inputs of computer chips and on it goes. The US President Donald Trump has been using his business savvy to play a game of bluff and the Chinese have been playing a tactical approach including dropping their exchange rate every time a new tariff is put on US imports which ends up in a no win strategy for both teams. At this point they have both played a losing hand and testosterone appears to be winning and brain power is losing.

At this point one of two things is going to happen. Donald Trump has an election coming in 2020 and if he heads into an election in a recession or after a strong correction he is in trouble and will lose badly. If Ji Jing Ping has more of an economic downturn in China, masses of middle income workers will be made redundant so something or someone has got to give to get the economy back on track. If both keep huffing and puffing the world market will go into recession and everyone will lose as there will be no winners. My bet is some compromise will be found in the near future and one of the main reason is Donald Trump is very aware that the great depression of 1918 was started by trade tariff’s and once you go too far there is no reversing the economy unless there is big stimulation and the USA has very little after the 2007 financial crisis. Simply put the USA printed billions of dollars put them into the economy and created spending which kick started the economy and none of this has been paid back and the debt reduced. Another problem he has is that they only have a few small cuts in interest rates to kick start a slowing economy as well which is usually a good tactic but already used in 2007.

In summary we are heading for a slowdown which is going to last for a while. Last time I said things would recover I was out by a good 4 months so I won’t put a timeframe on what is coming. We are going to have down swings, upswings and sideways movements in rapid succession but nothing is saying there is a crash coming. If Donald & Ji Jing Ping keep sitting at the table bluffing each other things could get worse but I am hoping some sense will prevail ,however two heavy weights posturing about strutting their manhood may cause problems as sanity may be overlooked. We shall wait and see but in summary the economy is not in a bad shape this problem is man-made and easily fixable given that a compromise can be found.

I shall keep you updated as we go along

Regards

Allan Butson