“There is no such thing as a free lunch.” This age-old wisdom used to be common knowledge. Today politicians go around claiming they can make everything free. Charles Schwab announced this week that trading in certain securities is “free.” TD Ameritrade followed suit. Is it true? Of course not! There is no free lunch in trading, and there is no free lunch in a trade war.
This up-down nature is sometimes blamed on the Fed and interest rates, and sometimes blamed on the trade war. In our opinion, the latter explanation is the correct one. Our current administration seems to view life as a zero-sum game. That is a very bleak way of looking at life; life is a win-win proposition.
The first step in solving a problem is figuring out what is causing it. Too often we get so focused on the symptoms that we forget to treat the disease. The market – which has had a fantastic year – is having a tough few days. There are two competing causes: trade and Fed policy. So, which is it?
The Fed has a tough job. We used to understand that. We used to give experts the benefit of the doubt, because we understood that doing things is hard and requires a certain set of knowledge and skills. We understood that because we were a nation of doers, so we naturally understood the difficulty of doing. Today we are increasingly a nation of spectators. Spectating is easy, and whatever it is we are spectating looks a lot easier than it actually is.
Last fall we had a market sell-off because the groupthink on Wall Street says that we are due for a recession. There was absolutely no sign of a recession in the U.S., but that didn’t matter. The data for the fourth quarter came in and not only are we not in a recession, but the U.S. economy grew at the fastest pace in more than a decade. Did they learn?
