Claire Corlett

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Fisher Investments on Trade War Fears | Capital Markets Update [2019]

Fisher Investments on Trade War Fears | Capital Markets Update [2019]


Trade warfares dominated headlines last year. How concerned are we about what happens to
the economies in the United States and China as a result of these? It should be obvious to people when you think
about the way we would think about markets, that fear of a false factor is always bullish
because the fear is in the marketplace today and when the falseness ends up being seen
as falseness, the fear reverts to normal. In just the same way, big fear of a little
negative is bullish. Because the big fear is in the marketplace
in advance, when it’s finally seen that’s it just a little negative, that reverts. It’s not as positive as fear false factor,
but it’s still a strong positive. We documented this all last spring and summer. The total magnitude of supposed trade war
tariff issues which end up being truly if they were all implemented, fully in, all of
it, from every country, is just taxes. If you aggregate those taxes and think of
’em as a percent of one year’s global GDP, it’s miniscule. One year’s GDP growth, it’s minuscule. Therefore, this is big fear because of the
framework that it’s presented to us in, people have a bias that says, tariffs must be bad. It’s big fear of what is a negative but it’s
a little negative. Big fear of a little negative is bullish. How long does it take us to get to that realization? I don’t really know. We’re still talking as we are talking here
today, about concerns of trade war with China and the US, Chinese trade talks. How that plays exactly, plays out, impossible
to know. But it’s big fear in the marketplace of what
will be a little negative at worst, and therefore that’s bullish. And an important feature of what we’re always
trying to do in the research department is to scale things appropriately. To take economic events or market events and
to be able to measure them relative to the total to see if indeed, is that a big thing
or is that a little thing. And what Ken was talking about if scaled properly,
is a very, very teeny thing. You know, with all these types of fears, people
often talk about a catalyst event. What’s the catalyst? How do you know the all clear signal has been
shown? And even in the case of a trade war or other
things like a government shutdown, it’s not always completely clear and yet the market
can move on beyond those things without an all clear signal. That’s true for bullish fundamentals as well
as it for false fears which is that you may not get a decisive event in the China US trade
talks. Maybe we will, maybe we won’t. But even without it, the markets can just
start to normalize it. At some point they stop fearing it. And they move on from it. And in fact that’s the typical way these things
happen especially as you’re coming out of corrections. Because it will be very seldom if ever, that
you’ll get the media saying, all these things that we worried about, they’re not really
anything to worry about any more. Instead what they’re on to is the next cycle,
they’re onto the next media cycle, whatever the next story cycle is. And that tends to leave investors behind. Markets pre-price, they look forward and that’s
why investors need to be in while the fear is in and let the gains happen from there
versus waiting for an all clear signal. And for views on current events in the world
of investing, visit marketminder.com. Updated daily, it offers on-demand access
to Fisher Investments’ most current thoughts on capital markets and the global economy,
as well as our sometimes irreverent commentary. We hope you’ll enjoy it!

1 comment on “Fisher Investments on Trade War Fears | Capital Markets Update [2019]

  1. I don't think you guys are considering many factors. Like China canceling all agricultural purchases. Or supply chain manufacturers moving out of China, therefore hurting China to the point of prolonged retaliation. Global fear and investment stagnation.

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