In the last two months, we have seen the stocks making great moves despite a lot of uncertainty. Where do we go from here in July?
It is very hard to tell but there is no question that there are growing concerns about the impact of coronavirus on the US economy. The question is will we have to retrench or go back to some sort of lockdown in the US? We seem to be inching in that direction. It is not going to be nearly as bad as it was in March and April. We all recognise that. May and June were strong for the economy, it showed up in the employment numbers but from this point forward, the markets are reflecting the fact that we will make progress but it is not going to be as easy. The numbers are simply not going to be robust. It is as though we are moving from a V-shaped recovery or the easy money, early gains to something that looks more like a U-shaped recovery. So things are starting to become a little bit more difficult.
Is it time to look at other asset classes as well? There is a lot of uncertainty. Would you advice people to look towards other asset classes, the safe havens like gold?
Gold is a good investment. It is a safe haven investment. The record shows historically that gold is a great place to be. It performs well relative to US stocks when there is a lot of uncertainty or the economy is in the process of slowing or maybe even worse. It is a little bit uncertain now because it looks as though the economic numbers although they are slowing down. Although easy money is behind us, the economic numbers will be positive this point forward or this point through the end of 2020. We will see a pretty big GDP numbers for the third quarter and a reasonably good or solid GDP number for the fourth quarter.
Under those conditions, gold might be okay but certainly not great, not the kind of performance you would see relative to the stock market if we are going to see a renewal of what we saw in March and April. In other words, if the recession in the US were to reassert itself. I will be very careful about gold. Go with a small position in gold, don’t bet the ranch.
There is a lot of poll year symbolism that we are seeing in the US and not just Donald Trump threatening against some sort of going back on the initial trade deal with China. The phase one was supposed to be put in place in September. A lot of moves are coming in on the visa front. We are also hearing of a ban on Tiktok coming in. Do you look at it as poll-year symbolism or perhaps there is more to it than what meets the eye right now? Do you see the US administration going back on the phase one of the trade deal because then there is going to be a lot more uncertainty for investors come September?
That is a big negative and it is a big possibility. Keep in mind this is the political season and I think President Trump recognises that if he were to sort of scrap the phase one of the China deal, that would be popular with many US conservative investors and conservative voters. So I would not be at all surprised to see him go back on the phase one of the China deal. It would raise uncertainty and obviously is not good for global trade or global economic activity and so that would be a negative for the markets. That is one of the many risks that we face. We face the risk of sort of re-lockdown I guess. We also face the risk of some political decisions which will not be good for the US economy, not good for earnings.