Google Antitrust Probe, Fed Studies Trade War, China Growth Questioned
In today’s Steady Investor, we answer some of the top questions on investor’s minds such as:
- Is China’s economy truly growing as fast as it claims?
- What does the antitrust investigation against Google mean?
- What does the Fed’s new study say about the economic impact of the trade war?
Read on to get the details!
New Fed Study Measures Economic Impact of Trade War – A new Federal Reserve study was released this week, as the Fed worked to quantify the economic impact of the trade war. Readers should note that these types of studies notoriously miss the mark in projecting hits to growth, with perhaps the best example of erroneous projections historically coming from the independent Congressional Budget Office (CBO). In short, the Fed’s findings should be noted, but not taken at face value. The research pegged the hit to economic growth in 2020 at -1%, which under current circumstances would mean cutting growth essentially by half. One relevant investor takeaway from the research, however, is that the Fed is likely to use their findings to inform monetary policy on a going forward basis. The next Fed meeting is on September 17-18, where market-watchers largely believe another quarter point rate cut is due.1
China Takes Steps to Boost Economy – Big news from the People’s Republic of China last Friday, as the government announced it would reduce the reserve requirements for banks by a half percentage point. ‘Reserve requirements’ represent the amount of cash that a government or central bank requires a bank to keep on hand relative to liabilities, so that in the event of a crisis or a downturn the bank will be able to stand on its own two feet. Following the 2008 global financial crisis, the U.S. raised reserve requirements for banks substantially but have tempered them slightly since. In China’s case, lowering the reserve requirement could mean freeing up $126 billion into the financial system, which banks can use to take make loans and take risks – two key contributors to economic growth.2
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48 States Band Together in Antitrust Investigation of Google – The biggest technology companies continue to feel the heat of increased regulatory scrutiny. In a major announcement this week, 48 Attorneys General – led by Texas AG Ken Paxton – have joined together for an antitrust investigation into Google’s practices as they relate to online advertising markets. Website publishers and small businesses have been complaining for some time that they have no choice but to use Google’s ad services, since the company owns and operates the technology for placing ads online. Google not only rakes in revenue from placing ads on its search site, but also by placing ads on other sites across the internet that often ‘follow you around’ as you browse. As state Attorneys General investigate Google, it is also in the crosshairs of the Justice Department, which is looking into the actions and business models of Google, Facebook, and Amazon. Only two states, California and Alabama, declined to join the antitrust investigation.5
Is China’s Economic Growth as Robust as It Claims? The validity of China’s GDP growth figures has long been an interest of economists around the world, and there is a growing chorus that the second largest economy in the world has been inflating their numbers. Researchers and economists have been searching for new ways to collect hard data on China, from analyzing corporate profits to taking a closer look at tax revenue, rail freight, property sales, exports, and other data that China’s government may have a difficult time altering (i.e., private sector data). By some estimates, China’s economy could be growing at half the rate it claims to be, which would mean economic output more in line with U.S. growth rates.6 The end takeaway here is not necessarily to take claims of a much weaker China at face value, but rather to acknowledge that on balance, China is weakening.
There is no way to know exactly where the market
is headed or how these stories will pan out, but finding the right investment
strategy can make a huge difference when managing the highs and lows of the
market. To help you learn more about strategies that cater to different
investment objectives, we have created our Dean’s List of Investment
Our Dean’s List describes five of our investment strategies that are ranked in the top 9% of their respective classes according to Morningstar (as of 6/30/19).8 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 The Wall Street Journal, September 6, 2019. https://www.wsj.com/articles/chinas-central-bank-to-free-up-126-billion-for-lending-11567765871?mod=djem10point
3 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
4 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
5 The Wall Street Journal, September 9, 2019. https://www.wsj.com/articles/attorneys-general-launch-probe-of-google-11568055853?mod=djem10point
6 The Wall Street Journal, September 8, 2019. https://www.wsj.com/articles/china-says-growth-is-fine-private-data-show-a-sharper-slowdown-11567960192
7 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
8 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
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