(New York)

Ray Dalio, one of the most famous hedge fund managers in the world, and the founder of the world’s largest hedge fund, Bridgewater, says that the world has lost its mind. The eccentric hedge fund founder recently published a blog post entitled “The World Has Gone Mad and the System Is Broken” in which he argues that zero rates, weak returns, and growing inequality are leading to something bad. What exactly that “bad” was remained unclear.

FINSUM: We agree that these are issues, but we are pretty tired of vague doom and gloom prognostications. We like a highly specific catalyst for such forecasts.

(New York)

In what comes as a very worrying announcement for investors, Goldman Sachs has just said that it may be time to cash out of equities. Goldman says that the current mass rotation out of equities and into bonds mirrors what happened before the Crisis. “Decelerating US economic growth, trade and geopolitical uncertainty, and near-record high starting equity allocations have likely contributed to the rotation from equities to bonds and cash this year”, says Goldman. Any steadiness in equities will probably just be artificial. “The peak in buyback activity arrived in 2018 after the Trump administration’s tax cut fueled a wave of repurchase programs. Buybacks are projected to fall 15% in 2019, and drop another 5% in the following year”, Goldman said.

FINSUM: In principle this seems like a sound assessment. The problem is that all the worries Goldman is citing have been on the table for a while and yet stocks have been rising.

(New York)

For many months there has been a great deal of fear about the threat of BBB bonds falling into the “junk” category. The whole fear is based on the idea that as the economy slows, this huge group of companies would get downgraded and there would be forced divestiture, sending bond prices strongly lower. However, the opposite has happened. Over the last few months, BBB bonds done nothing but strengthen. In fact, the spread between BBBs and Treasuries just hit a 52-week low, showing investors renewed faith in what is the largest segment of corporate bonds.

FINSUM: Unsurprisingly, the price growth has led to a bunch of new issuance. It is important to remember that though prices have risen, the risk of a recession and downgrades is still very much there.

(New York)

In what comes as a very encouraging sign in the trade war, Washington is considering dropping some tariffs on Beijing as part of an effort to close a deal with China. The Trump administration is reportedly debating whether to drop $112 bn worth of tariffs. That said, the White House would be expecting something in return. The potential cut in tariffs follows the cancellation of a new $250 bn+ tariff package.

FINSUM: Both sides making concessions is the key to a solid deal. We find this encouraging.

(Detroit)

The car industry is the epicenter of the current economic slowdown. The car business is both the culprit and a victim of the biggest economic downturn since the Crisis. It is not just in Germany, but also in Asia and Detroit. The industry uses so many raw materials and supplies from many adjacent industries, that the contraction in the auto sector is is dragging the whole global economy down with it. The chief executive of VW says “This trade war is really influencing the mood of the customers, and it has the chance to really disrupt the world economy … Because of the trade war, the car market [in China] is basically in a recession . . . That’s scary for us”.

FINSUM: What is curious about the car downturn is that consumers are very strong. Therefore, from our view, the weakness in the auto sector is more concerning because it could be a leading indicator.