As is often the case in the current news environment, the endless headlines surrounding the relations between the United States and China overshadow the substance of underlying policy and provide little added value to the public. While this may make for good political theatre, it leaves many struggling to grasp what has been developing not just over the past year, but quietly for the past decade. In this week’s EVA, Evergreen Gavekal partner Louis Gave offers thought-provoking insights on the complex “trade war” being staged by the two countries. Louis—and the venerable Charles Gave, with his 50 years of investment experience—argue there are far bigger implications for the ongoing battle than just the balance of imports and exports. The following examines the events that have led us to this point, as well as the options that may be exhausted going forward.
Inflation is a fickle measure influenced by several economic variables. Over the last 100 years, the rate of price inflation in the United States has swung wildly, from upwards of 20% in the early 1920, to -17% a few years following, to a steadier rate in the low single-digits over the last 35 years.
Over the last decade, many investment professionals have been tested by two simultaneously occurring phenomena: the rise of passive investing and the stronger performance of growth stocks relative to value.
For those rare workers who actually took advantage of the national holiday at the beginning of the week, worries of a global economic slowdown loomed in the periphery. On Monday, the International Monetary Fund (IMF) released a report stating that China’s official growth rate for 2018 was 6.6%, or the slowest it has been since 1990.
This week started on another low note, as US equities tumbled on weakness in energy and tech. On Tuesday, the S&P 500 temporarily slid 10% below its record September close, while the Nasdaq fell to nearly 14% below its August high. In an equity market that has skated by whimsically on the back of relaxed monetary policy and historically low interest rates for nearly 10 years, trouble has not oft been on the mind of the fully-invested, US-concentrated, passively-exposed, large-cap investor. It seems as if we might have reached a breaking point.