If You’re Not Long, You’re Wrong

I’m bullish going forward despite signs that the world could be facing its worst economic slowdown since the financial crisis. Just last week, the International Monetary Fund (IMF) downgraded its 2019 growth forecast to 3 percent, a significant drop from the past couple of years.

IMF is forecasting a synchronized economic slowdown

The reason for my bullishness is simple: Bad news is good news. Policymakers and heads of states see the threat of a slowdown and are more likely to enact stimulus measures to prevent a full-blown recession. This is especially the case in nations with upcoming federal elections—the biggest one being the U.S. presidential election.

President Donald Trump is under pressure from a series of House investigations, not to mention an impeachment inquiry that’s near guaranteed to result in official articles of impeachment. Be that as it may, Trump is the only U.S. president that I’m aware of who sees the market as a barometer of his policies’ success. Every morning, after he wakes up and coifs his hair in the mirror, he wonders what his administration can do to drive stocks higher. We’ve already seen aggressive corporate tax cuts and a wave of deregulation, and we may expect to see more as Trump seeks reelection. So even though you may not like the man’s governing style or his Twitter activity, he always has investors’ interests in mind.

Fiscal-Monetary Imbalance Is a Global Growth Headwind

The same cannot be said of policymakers in the European Union (EU), where much of the slowdown is currently happening. Germany, the world’s fourth largest economy, is facing a recession. The problem is that there’s a massive imbalance between fiscal and monetary policymaking. Instead of doing as the U.S. has done—cutting taxes, rolling back business-killing regulations—EU strategy has been to keep rates at near-zero or lower. Denmark, for instance, now pays borrowers to take out a mortgage.

This is unsustainable, and there are many market watchers, including Bill Gross, who believe we’ve seen the end of what negative rates can achieve. In his most recent investment outlook, the legendary co-founder of PIMCO says that zero-bound easing may have helped asset markets over the past decade, but it will not be enough to keep the bull market running.

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