Pro Perspectives 9/18/19

September 18, 2019

Nine months ago, the Fed  raised rates for the ninth time, in its attempt to normalize interest rates.  And Powell told journalists at the press conference that followed, that their program to shrink the balance sheet was on "auto-pilot."

The world was net raising rates in 2018, following the lead of the Fed.  But the Fed led the world down the wrong path, tone deaf to the risks of an indefinite trade war.  

Today, the Fed cut rates for the second time in 49 days. 

A week ago, the European Central Bank restarted QE (after ending it last December). 

And along the path of the past nine months, there have been over 100 actions take by global central banks to lower interest rates.

The world is now prepared for a worst case scenario on trade.  That sets up a lopsided risk/reward for financial markets (i.e. asymmetrical outcomes).  With central banks pointed in the direction of defense, and standing ready to act (as a preventer of bad outcomes, as they were throughout the post-financial crisis environment), the reward for investors on a U.S./China trade agreement far outweighs the downside of an indefinite trade war. That’s good for investors … very good!

 
On that note, as I’ve said, we should pay close attention to the signals that Trump and his team are giving about the potential of a cut-down version of the trade deal.  Remember last week, Trump said he would be open to an interim deal.