“There’s absolutely no question that all (well, a lot) of the naysayers I’ve been at odds with for the past 18+ months (and that includes the Fed) are now on board: If the trade war persists, and, worse yet, if it bleeds further into our relationships with the EU, Japan and, now (per Trump last week) Vietnam and India, we can absolutely forget about any of the latest positive data sticking. I.e., the economy and the markets will have hell to pay in the not too distant future. Which is precisely why the Fed is about to cut interest rates!”

“A less sunny scenario, however, is one where, ironically, stock prices do not correct anytime soon, and, thus, unwarranted confidence (buoyed by a lofty stock market) along with political pressure (and/or, worse yet, grossly backward ideology) keeps trade tensions (and the attendant uncertainties) alive long enough to root recessionary conditions to the point where what would’ve otherwise been your garden variety correction morphs into the next true bear market.”

Here’s from our July 8 blog post:

“I’ve maintained herein from the get-go that it’ll be the stock market that ultimately ends the trade war; the stock market plunging, that is. As long as the President can continue to tweet self-congratulations for record stock prices, he’ll not feel the least-bit pressed to put an end to the tariff regime that he created; despite the weak data coming from the industrial sector, the pleas from literally thousands of U.S. companies, and the prospects for a rough earnings season(s) to come.

My concern is that the longer the market takes to deliver the much-needed message, the more macro deterioration the economy will suffer in the meantime. Therefore, if it takes too long, if, let’s say, the Fed continues to prop stock prices up, we could find ourselves ultimately staring down the next recession, and a doozy of a bear market to go with it. That’s not yet my base case, as our own macro assessment –while a very far cry from the high scores of a year ago — still reads expansion.”

And here’s from our April 20, 2018 (yes, this has been a concern of ours for awhile) blog post:*

“2. The palpable uncertainty inflicted by Washington’s protectionist actions — and further threats of the same. This couldn’t have come at a worse time for the present bull market, as:

• It essentially introduces an element of tightening (threatening the pace/existence of the expansion) that gets directly in the way of the Fed’s attempts at restocking its ammunition with which to battle the next recession: This tightening is showing up in the expectations components of multiple business surveys; i.e., corporate decision makers have become guarded in their outlooks, citing the threat of a trade war as the source of their uncertainty.”

*Yep, I know what some of you are thinking; there I was last year fretting over the trade war and the Fed and here we are at all time highs. Well, you’re right, although the 1-year Dow chart really isn’t all that inspiring:

Have a nice weekend!
Marty