TIC Reveals The Landmine; This Time Is Already Different

I’ve been writing since October when China reopened from that month’s Golden Week holiday that big dollar problems were imminent. You needn’t have taken my word for it, the PBOC said as much. Not directly, of course, but in interpreting the central bank’s anticipated behavior left little doubt. 

Over the next few months, more and more it seemed as if the entire global economy struck a landmine; the not-decoupled US economy stuck right in the thick of it, too. Recession indications spread especially first in the manufacturing and trade sectors. It has had the effect of masking what’s really going on.

I wrote in the introduction of my recent paper:

The coincident timing of a rise in trade protectionism has formed the basis of many if not most mainstream explanations. In specific terms, the US imposing tariffs on Chinese goods and China’s response to those restrictions only amount to relatively small changes balanced against all of global trade. Attempting to make up the difference, to try and explain very clear and significant downside risks materializing in economies all over the world, economists have been left studying the potential channels of second and third order effects of “trade war” sentiment more broadly.

Rather than seeking to assign uncertainty to intangible concerns about potentially small, non-specific threats, we can look to financial markets for clues as to other alternative factors. In them, uncertainty is equivalent to “flight to safety”, the unusual and significant demand for highly liquid, low risk securities.

Tariffs aren’t near enough to explain what has happened; not the magnitude of it, anyway. There’s something much bigger, the scale of the October to December landmine declares it of a different origin and nature. Even central bankers being moved unwillingly closer and closer to rate cuts must be wondering what’s really going on here.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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