The summer has traditionally been a quiet time for the stock markets. But we certainly are not in ordinary times with Donald Trump in the White House and Boris Johnson at 10 Downing Street.
The trade war between the US and China is really beginning to bite. After contiously telling everyone who would listen that China was paying for the tariffs (it doesn’t work that way!), Trump postponed the latest round of tariffs that was supposed to take effect on 1 September so they wouldn’t impact on Christmas shopping sales. This didn’t last long as the Chinese announced they were imposing more tariffs of between 5% and 10% on US goods. Trump immediately hit back by raising rates on almost all Chinese imports.
With 10 years of growth, global markets are slowing down, which is a natural occurance, companies will never grow continuously. But the trade war with China is creating uncertainty in the markets, which is being felt globally.
Trump then attacked the Chair of the Federal Reserve, Jerome Powell, as an “enemy” for not cutting interest rates further. With mortgages that are three months past due or worse at a 12 year low in the US, there is no real need for an emergency cut in interest rats. The independence of the Federal Reserve is one of its foundations. To politicise their work and decisions that they make will create instability and more boom and bust type life cycles.
Meanwhile in the UK, Boris Johnson seems determined to lead the UK out of the EU on 31 October without a deal. Angela Merkel gave him 30 days to come up with an alternative to the Northern Ireland backstop, which he promised to do. With the technological solutions suggested not actually existing, it is hard to see a solution being found.
Now Johnson has prorogued Parliment which means the end of a parlimentary session. It is usually done after a general election and any legislation that is scheduled for discussion is wiped clean and they start afresh. Johnson and his colleagues have said it is required to get through legislation and funding for education and police. The more suspicious of us see it as a way of avoiding a vote of no confidence in his government. One of Johnson’s cabinet, the Michael Gove is on record saying “proroguing Parliament in order to try to get No Deal through, I think would be wrong.” It doesn’t seem those feelings lasted for long!
From an investor point of view, you have to look past all the chaos that is being created. Investments should be viewed over the long term and short term ups and downs should be ignored. Do I believe that the value of my investment will be worth more than I put in at the end? Keep the end game in mind and don’t get distracted about what happens in between.
If you have any questions, drop me an email at steven@bluewaterfp.ie