In today’s deep dive with Paul Kiker from Kiker Wealth Management. We discussed the ongoing trade tensions with China, which are far from resolved, and the surprising weakness in recent ADP job numbers. Despite these issues, the markets continue to climb, but there’s a growing skepticism among people I talk to about the sustainability of this market behavior.
After all, China is a big part of the US economy (like it or not), and these charts of ultra-depressed Chinese shipping traffic are decidedly not positive:
Paul sees the markets as being driven by technical flows rather than fundamental economic news. Passive investing, options markets, and liquidity are pushing prices in ways that don’t necessarily reflect the underlying economic conditions. There’s a lot of optimism, but beneath the surface, things have changed significantly since the financial crisis, yet habituated retail investors are still buying in heavily.
We also touched on the AI boom, with companies like Nvidia potentially tapping into a trillion-dollar market for data centers. However, I’m skeptical about the real economic value and return on investment for such massive expenditures in technology infrastructure.
The conversation shifted to government spending, where even Elon Musk has expressed his dismay over the recent spending bill, calling it an abomination. He’s continuing his pressure campaign.
Despite this, or perhaps because of this (due to the additive-to-GDP effect of both government deficit spending and declines in imports), we’re expecting a robust GDP report due to less import subtraction, but this might not reflect true economic health.
We delved into the trade dynamics with China, noting a significant drop in shipping volumes, suggesting that the trade war isn’t over. This could impact our economy negatively in the long run, even if short-term GDP looks good.
Lastly, we discussed the broader implications of these economic trends, including the potential for inflation, the role of government regulations, and the importance of being prepared for economic shifts. The markets might be ignoring these risks, but as investors, we need to stay vigilant and adapt our strategies to protect our financial well-being. Remember, the key is to focus on the return of your capital, not just the return on your capital. Until next time, stay resilient and trade safe.
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by abysmalspectator