Having warned last week that “stock markets are crazy” as they rally in the face of an escalating trade war…
Guggenheim Partners’ CIO Scott Minerd reiterated his stance during a Bloomberg TV interview this week, warnings that a trade war with China may be “devastating” for the world’s two largest economies, raising the risk of a deep U.S. recession as soon as next year.
One glimpse at the following chart and it’s clear that Minerd has a point – how does this make any sense?
“The tail risk is getting fatter and fatter,” Minerd, whose firm oversees about $305 billion, said in a Bloomberg Television interview. “So far the Chinese have shown no interest in backing down, but neither does Donald Trump.”
Higher tariffs from a trade dispute may fuel U.S. inflation, prompting the Federal Reserve to lift its benchmark rate to as much as 3.5 percent by the middle of next year, Minerd said. That would raise the cost of borrowing and put the brakes on growth, the money manager said. The rate hikes would probably occur as the stimulus from tax cuts wears off, adding further downward pressure on the economy.
“The consequences of a trade war would be devastating for the U.S. and the Chinese economy,” Minerd said.
And the ‘consequences’ are already showing up…