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Mr. Navarro's Recession

economy

Mr. Navarro’s Recession

The Wall Street Journal recently wrote about Mr. Peter Navarro, Economist and Assistant to the President, on how his ideas might lead to a recession.  The WSJ wasn’t predicting, just warning that Mr. Navarro’s ideas could reduce short-term economic activity.  My thought is that the United States should focus on the long-term view by eliminating the Chinese culture of Intellectual Property (IP) Theft and forced transfers of technology even at the expense of the global short-term business cycle.  But first, a little background.

The WSJ thesis that Mr. Navarro’s policies toward China might cause a recession.  Two of Mr. Navarro’s key points with China are Intellectual Property theft and forced technology transfers. These two points have been ignored by the West for too long, we must face the issue directly and resolve.  This will not be easily negotiated as this will require both cultural and legal changes within China. However, if we fail to address, we will have done no service to our future generations. 

I have a grand love of China; the country, the people and their history are fascinating.  During my time as a graduate student at Pepperdine, our economics professor Dr. Gertmenian, conducted a three-week tour of China.  Professor Gertmenian worked with President Nixon on the Security Council thus helping open China to the West.  In 1989 we were the first large tour group to travel to China post the Tiananmen Square incident.  We toured many interesting places including the US Embassy, The Great Wall of China, both the Summer and Winter Palaces, Tiananmen Square, the Terracotta Army and of course the Forbidden City.  This trip provided me with a glimpse into the wonderful history and future of China. China was growing from a large rapidly developing Third World country into a major economic powerhouse and military force.  

Therefore, even if we must endure the pain of protracted negotiations and a possible “Navarro Recession”, the costs will be worth it in the end if we can simply eliminate or reduce both Intellectual theft and forced tech transfer within China.  Partly as a result, global markets have been experiencing lots of volatility. Wednesday, August 14th, 2019 the Dow Jones Industrial Average was down 800 points.   

The US Market has performed extremely well over the past two years and the fundamentals look positive – low unemployment, low inflation, positive consumer and business attitudes. Wal-Mart, who reported positive earnings this week, is generally viewed as a good proxy for the average American consumer, and if that is the case, then this is another positive sign for our economy as a whole. This Bull Market is old, and it will end, they always do, but that doesn’t mean that it will end now or because of China.

Another factor that seems to be spooking the market is the inversion of the 2 & 10-year Bond.This means that the rate of interest of the 10-year bond is lower than the rate on the 2-year bond.  This is a traditional signal that the market will turn within the next year. However, this indicator does have examples of false positives.    

The key point to remember is this – we at Hamilton Financial Planning, invest for the long-term.We are not short-term traders and cannot predict future interest rates, stock prices, tax rates or political outcomes.We do focus on what we can control – like your investment selections, allocations and contributions, goals and plans to ensure they align with your hopes and dreams.  We focus on financial planning first – meaning we like to build your financial situation into a model and then we can adjust to help ensure your goals are met.   

My recommendation would be to not focus on the financial media hype about the next economic downturn.It could, indeed, be the result of Mr. Navarro’s focus on IP theft or forced technology transfers. Recessions are usually caused by a shock to the economic system.  Focusing on ensuring you are on track to meet your goals is what is critical to you and to us.

Scott Hamilton


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