Since the market opened last Thursday, we have seen the market give up a portion of this year’s extraordinary gains. The S&P 500 index as of this morning at 11:40am is down 2.25%. Let’s differentiate between a normal “correction” and a longer-term, more serious investment issue, that we call a “recession”. Recessions are problematic, and the last time we saw a significant one was from December 2007 through early March of 2009. Unlike a short-term correction, a recession results in longer-term declines in the equity markets and the value of your investments.
The technical definition of recession is two consecutive quarters of negative gross domestic product growth. Corrections are a totally different animal! Corrections are just the market giving up some of it’s previous gains for a shorter period of time usually representing a quarter or less and most of these types of downside movements are a month or less. Our opinion? We believe we’re in a simple short-term correction that will have no long-term fundamental effect on your account value or our economy’s growth. This lack of a longer-term effect on our country’s growth means that as this short-term correction runs its course, the equity markets should, inevitably, trend higher. In other words, this is merely a speed bump in the value of your account – not a brick wall! Our confidence level in this projection is exceedingly high.
What’s Driving this Correction?
This correction is being driven primarily by the nearly one-year trade dispute with China. In terms of picking winners and losers, it is our view that China’s financial losses, incurred over the past year, are approximately four times that of America’s economy. You see this reflected in China’s reduced currency value, the significant reductions that have occurred in their economic growth, and the increasing extreme measures they are taking monetarily to prime the pump of China’s economy.
We have to keep the big picture in mind here because the pain that China’s feeling is much, much greater than the pain our economy is experiencing. America will eventually not only gain a successful resolution of the China trade issues, but also emerge in a much stronger competitive position going forward. The eventual elimination of a forced technology transfer by the Chinese for American companies, the ending of their decades long theft of our intellectual property, the elimination of their decades long policy of currency manipulation to gain manufacturing market share (thus stealing jobs from other countries), and the end of their expansive plans to use their technology to steal defense and corporate secrets. These changes will highly benefit not only the U.S. economy, but the world’s economy as well!
It is with great gratitude that we say thanks to our national leaders who finally have taken a stand against these long-term problems. Just like a gladiator in the arena, our president is getting a lot of arrows slung his way, but his pragmatic approach will lead to a successful resolution and we believe this will happen prior to the end of this year. U.S. government policy pressure is also moving U.S. corporations to produce fewer goods in China and that helps move manufacturing jobs back to our shores, or the shores of friendlier countries. The loss of jobs to the Chinese results in a net gain to the Western, and our domestic economy. The absence of strong resolute action in the past by multiple presidents from both parties, is directly what has caused the tens of millions of American lost jobs over the last twenty-five years. Now, those jobs are returning to our shores. This will not only result in a continuing resurgence of middle class incomes (manufacturing jobs are a lot higher-paying than jobs in service industries), but is also likely to lead to a Chinese long-term economic slow-down and an even more significant decline in their economic growth. The likely outcome of all of this is a freer and fairer trade system, both with China and the European Union. We are currently negotiating (for the first time in nineteen years) trade-issues with the United Kingdom, even while other countries discuss leaving the European Union’s trading block after Britain exits in October of this year. This ability to negotiate bilaterally with individual countries, instead of collectively with The European Union, will lead to a fairer and freer system of trade that regains America substantial trade advantages.
The China trade dispute, lasting over a year now, has led to only a short-term equity market decline. That decline should not, in any way, lead to a longer-term recession. Our nation’s economic growth, job growth, resurgence of manufacturing jobs, and increase in real income is being driven by our President’s policies as they relate to trade, taxation, and rational regulation. These policies are extremely likely to continue long-term as the liberal turn toward socialism is completely and utterly devoid of both negative historical results and rational thought. Socialist pandering will ultimately lead to the failure of any Democratic candidate put forth for the 2020 Presidential election. If that craziness continues, Republicans will hold the Presidency and Senate while gaining an opportunity to regain the House. This will provide united government that implements common sense policies and returns our republic to an America First policy – not continued policies of appeasement that have done nothing but embolden our enemies, sacrifice the lives of our soldiers, drain our jobs, and provide large levels of despair for middle-class Americans.
All of these changes should work to the good in our economy and in your investment account, of this, we are confident. So, at the end of the day, please consider saying a prayer to thank our Heavenly Father for the opportunity he gave each of us to be born in America. Realize that this short-term correction, too, will pass and lead to a brighter economic and investment future. Please call if you have any questions.