"Kee" Points with Jim Kee, Ph.D.


  • US and China
  • Europe and Brexit

 

US and China

“Green shoots” seems to be the theme this week regarding data coming out of the US and China, the world’s largest and second largest economies respectively. In the US, last Friday’s jobs report (196,000 non-farm jobs created for the month of March) has generated some skepticism over the recession concerns created by the recent, albeit temporary, inversion of the US treasury yield curve. In China, there is a growing consensus that last year’s slowing has given way to a bottoming and reacceleration of economic growth there (Financial Times). Of course, the key issue continues to be the ongoing US-China trade talks. Asked about whether a de-escalation of trade discussions between the US and China (and Europe) would be bullish for stocks, respected Leuthold Group economist Jim Paulson suggested that such a de-escalation was probably already baked-in to current equity prices. Given the strong, double-digit performance of global equities this year, I agree with Paulson. But I also agree with his assertion that valuation levels don’t rule out further gains by year’s end.


 

Europe and Brexit

As for Europe, UK Prime Minister Theresa May is pushing for a few month’s delay to Brexit (i.e., the United Kingdom exiting the European Union), while European Council President Donald Tusk is pushing for a longer delay, perhaps a one-year extension (WSJ). My understanding is that this would provide more time for reasoned negotiations versus multiple time extension requests. The best line I have heard regarding Brexit comes from a British academic, “The more someone says they know what will happen with Brexit, the less you should trust them.” I have a more generalized version of this statement, which is, “The more conviction someone has about a particular market or asset class, the less experience they have.” People with 20+ years of experience in the investment business are much fonder of diversification, because you can’t know with certainty, than concentration, which requires a higher degree of certainty than is plausible.