Good afternoon and what a great morning it is! You can just feel that spring is about to spring on us as it does every year around the time the final rock at the Brier is thrown and you have heard the word
(HAAAAAAAAARD) for the last time at the Brier.
This week I want to put into perspective where we are in the global market cycle as whether we realize it or not everyone on the planet is now connected in more ways than we can imagine. Having the responsibility of leading a country and the decisions they make can end up with unintended consequences that may have been avoided in the first place. I guess they call the fallout (unintended consequences) because the decision makers did not think it through far enough. I say this because of a headline I read recently. The headline simply was China will not buy Canola from James Richardson and Company which is a Canadian company. I believe this was a shot across the bow as the headline could have said China will not buy Canola from Canada at all and that would probably have had meant a much larger drop in the price of Canola which in turn puts less cash in the farmer’s pocket which means less cash for everyone on the prairies where Canola is an important part of the ag industry overall. How did this happen? It is quite simple actually. As we all know the US or should I say President Trump’s slogan is make US great again. In order to this he had a game plan that has been playing out over the last 15 months. The game plan has not changed and that is to intimidate, threaten, twist the facts for your own agenda and then say I love you before you come up with a deal.
Here is how what seemed like a small thing to us at the time can turn into an unintended consequence for us. The US asks us to basically arrest a Chinese business owner that was in Vancouver. That is how the US negotiates. It would have ended there except it never. China does subscribe to the term (turn the other cheek). They arrested a couple Canadians in China as a response. This now put us in a place we had not intended to be. To make a long story short things tend to escalate when you start arresting and detaining other countries citizens. Now that is quite a negative outlook. I am an optimist by nature so I believe that it will not escalate much further as I truly believe no one really wants to cut off their nose to spite their face so cooler heads will prevail as it does not take a rocket scientist to realize these tit for tats lead everyone down a path that will no doubt have more unintended consequences that we are prepared to create. There is talk that the US and China will have some sort of an agreement in place by the end of March and put an end to escalating Canada’s involvement in THEIR disputes. Just like a marriage that has disputes, if the disputes are not dealt with the marriage typically does not end well and that is why I think both sides know that a divorce is no good for either side so they will agree to try harder to get along and put some house rules in place. I am telling you this as I mentioned earlier we are ALL affected by the decisions leaders make. If this trade dispute does not get resolved and keeps escalating it is going to take money out of the pockets who need it the most and put it into the hands of the greedy.
Hind sight is always crystal clear and looking ahead always seems to be through a dirty windshield. Looking ahead is what we all do and think about. We all look at the future through our own lenses. Some lenses will show the glass half full and some will show the glass half empty and it has to be that way in order to balance things out. If it was not this way there would only be all buyers or all sellers and therefore no markets as you always have to have buyers and sellers to make a market. So we have just had a down week after 10 up weeks in the markets. I am pretty sure the glass half empty folks are going to be saying here we go into a recession and my retirement savings are going to take a hit. I want to share what the chances of that happening in 2019 are as that seems to pop up in conversations lately and in part that is because the business news channels stear us in that direction with their headlines and interviews.
Here are the facts:
The 10 biggest economies of the world are all expected to have a positive GDP number in 2019 and 2020, by the way Canada is number 10 in size and US is number 1. India is projected to have the best growth at 7.4% growth and is number 6 in economic size at 2.982 trillion. We are expected to grow at 2% and our economy size is 1.8 trillion. The US is expected to grow at 2.5% and the size of their economy is number 1 at 21.5 trillion. With all this data showing continued growth, although slower, there are trends that could end up with unintended consequences. One of the trends the globe is seeing is the rise of populism. The election of President Trump is an example of populism. Populism is about two groups. The corrupt elite and the pure people. Those wanting to be in power will play on those characteristics and want complete control and convince the pure people that the only way to deal with the corrupt elite is to give control/power over to the person trying to get elected. A good example of that fact is President Trump declaring a national crisis to get funds to build the WALL. This all sounds political and it should as it is political.
The Global Markets biggest threat to continued GDP growth is GEOPOLITICAL risk and that is why all we hear about is the China/US trade war and that is Geopolitical risk on the biggest stage. That is why I said at the beginning that looking ahead is looking through a dirty windshield as there is no way of determining the future when in fact there is Geopolitical risk and you have leaders who have more control than they should have and using the populism movement as a way of grabbing as much control as possible. In a nutshell an expected trade deal at the end of March will most likely mean continued Global growth. If the decision makers escalate the trade war and there is no deal at the end of March there may be consequences. I do know that fear is creeping into the markets the closer we get to the end of March.