Danger Will Robinson

Good Morning,

We are in the middle of the dog days of summer, but the market is going crazy. Last week was a tumultuous as the market started down and finished the week with news that GE might be running a bigger accounting scandal than Enron. I planned on writing about another topic, but I happened to see an article in MarketWatch that was worth touching on. The article mentions 10 macro risks that are currently present in the global economy which could have ripple effects. A couple of key takeaways from the article are:

1. Europe is a mess
2. The threat of China deploying the military to Hong Kong is real
3. The possibility that the US military will be deployed is increasing

There was a lot to unpack in the article but the pressures in Europe have created headwinds for their companies and it looks like more might be on the horizon. Between the UK leaving the European Union with no deal, Italy not conforming, and Tariff Man turning his sights to European countries (because China negotiations are at an impasse) creates more uncertainty than in the past couple of years. The relationship between Hong Kong and China is similar to how Americans view California. If the Chinese government does put troops on the island it will be viewed as an act of aggression and could spark a war. This leads to the situation in Iran. While it is undesirable if the US deploys troops to Iran, it is a high possibility this will happen because Iran is in a lose-lose situation. They have so many sanctions against them that they are virtually locked out the market, so their best bet is to be hostile and force everyone to the negotiating table, which could help them get some reprieve.

This year I've preached being more conservative than in the past based on increasing headwinds and political risk. This article unpacks more risk than what I talked about and with our economies being more connected than in the past it matters what's going on in the world because that impact will be felt in your pocket.

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