We’ll touch on several bases today which should make for an interesting E-Letter. We start with the fact that China and Japan are reducing their holdings of US Treasury debt. As the two foreign countries holding the largest amount of our debt by far, should we be concerned? Maybe yes, maybe no.
The White House announced late last week that President Trump will enact new protectionist tariffs of 25% on imported steel and 10% on aluminum. This move set off fears of a new trade war as foreign trading partners most affected by the new tariffs are expected to retaliate with new tariffs of their own that will hurt US industries.
President Trump wants to spend $1.5 trillion rebuilding America’s infrastructure – roads, bridges, airports, railroads, ports, water systems and whatnot – over the next decade.
With Congress’ passage of an additional $368 billion in federal spending over the next two years on February 9, our government budget deficits could approach, and perhaps exceed, $1 trillion annually for the next several years. That’s very scary!
Last week’s carnage in the US stock markets was one of the worst meltdowns I have witnessed in my 40+ years in the investment business. Most US stock indexes plunged over 10% in value from Friday, February 2 to the lows on Friday, February 9 – complete with two days where the Dow Jones Industrial Average lost over 1,000 points in one session.
The most significant economic news of late was last Friday’s disappointing report on 4Q Gross Domestic Product which came in at only 2.6% (annual rate) versus the pre-report consensus of 3.0%.
Over the last several months, I have written often about how the US economy has strengthened significantly since the disappointing 1Q of last year. This time last year, most forecasters felt the economy would do well to grow by 2% in 2017.
I don’t make market predictions very often. Normally, I leave those decisions to the professional money managers we recommend at Halbert Wealth Management. However, some recent developments have made me very concerned that the US equity markets are at high risk for a serious downward correction just ahead.
As you know, a lot of predictions are made this time of year – about the economy, the markets, interest rates, inflation, etc. Some forecasters are predicting that 2018 will finally be the year when inflation takes off and returns to higher levels. However, some of these same prognosticators have been saying the same thing for the last several years.
Our stable of investment strategies at HWM has never been more diversified than it is today. In the last few years, we have significantly expanded the scope of the investments we recommend, including several successful strategies that do not involve stocks or bonds.