The Income Generation: China

David Scranton: When a country is losing many millions of dollars on trade with virtually every country it does business with, trade wars are god, and easy to win. Example, when we are down$100 billion with a certain country and they get cute, don’t trade anymore- we win big. It’s easy!

David Scranton: So it beings, with that tweet, Donald Trump his rational for a plan to impose tough tariffs on steel and aluminium and this was announced back on March 2nd. Since then his’ tit for tat sparrowing’ especially with China has kept Wall Street reeling. Where all this heading is and what does it mean for everyday investors? It’s now time again to tune up the hype and focus on the facts, facts that matter to you- the income generation!

David Scranton: Let’s get started; get ready to separate the reality from death

David Scranton: How does it affect the market? How does it affect the economy? Thanks to efficiencies and new technologies and the staff of Veteran Analysis and Portfolio Manager, sounding strategies and getting new standard and bring institutional style investment to your portfolio.

David Scranton: Hello, I’m David Scranton. We’ve done a few shows in market volatility and what’s driving it, and what’s been driving it most recently our president Trump’s words and actions on trade. So far April has been a nonstop roller coaster ride for Wall Street as the President and China’s swap escalating tariff treat and economists subsequently warned of possibly danger of a trade war. So the question becomes, how do we get here and where is all this going? And what are the potential pros and cons of the economy as well as foreign investors in the income generation like you and me?

David Scranton: We’ll sort it all out today with the help of our guests, Gordon Chang, author of “The Coming Collapse of China,” and Jeff Small, author of “Turning Financial Planning- Right –Side Up.” But first, let’s talk about how we got where we are now and where could lead? So, the question becomes our trade wars good and easy to win, as President Trump’s tweeted on March 2nd? Well, most economists would say no, that there is more downside than upside potential to a trade war for all involved. But, you could argue that the motivation behind the Presidents initial announcements about tariffs was good or well-intended?

David Scranton: The total US trade deficit stands at 566 billion dollars; which shows that our country imports hundreds of millions of dollars more in goods than it actually exports. As the President, many others see it as largely due to bad trade deals that have been made in the past. Those have created an unbalanced tariff system, which countries impose larger tariffs on our products than we do on theirs.

David Scranton: So what is a tariff? Well, simple put a tariff is a tax or duty charge and for example, if we’re paying a 20 percent tariff to export a product, but let’s say only charging 2% to import the same product obviously that’s a huge financial advantage for the other countries export industry over ours. Although, reforming the international trade policies, re-bouncing the tariff system could help us to lower that sky-high trade deficit and add to our own GDP growth. This, of course, is our President Trumps goals. In the known uncertain terms he has singled out China as the main beneficiary of unfair trade policies and call for new tariffs on $50 million Chinese imports. Specifically, he has imposed new tariffs on Chinese steel and aluminium, and call for tariffs on over 1000 other Chinese imports including flat screen televisions, medical device, aircraft parts and batteries. He has also blocked Chinese takeovers of U.S companies in order to tariffs against other countries.

David Scranton: Now, many counties have since retaliated, including of course China, which is called for tariffs on120 products imported from the U.S. Many products on the list come from states that favoured the president in the 2016 election. That’s significant because if President Trump, it gives him incentive to try resolve this whole issue without hurting, farming and manufacturing economies in his based states. Taking queue from China, the European Union has also threatened to hit back which would hurt the President the most. They have called for tariffs on $3.5 billion worth of American good including certain brands of motorcycle, blue jeans, and yes even whiskey manufactured in red states. As all of this has unfolded in the past six weeks, Wall Street has reacted with interchanging doubts of panic and then relief.

David Scranton: We’ll talk a lot more about this and just why does this happen in just a bit? But first, let’s try to answer that question is the trade war a good thing or could potentially be a good thing? Well, despite all the worry on Wall Street end, warnings from economists, there is a scenario which the whole situation could end up being good for the United States. If we do manage to get the tariff system balanced, meaning no country’s exporting industry has unfair financial advantage, that could certainly open up some very positive economic opportunities for us. Obviously it could allow us to increase our export  business relatively imports, helping to minimize that out of control trade deficit and with Chinese imports diminished or significantly more expensive that can increase the demand for American made alternate here at home; a demand that could not only help existing companies but also create opportunities for new ones. Now granted a diplomat resolution that creates a balance tariff system is a long shot and if it doesn’t happen, then, in that case, the best we can probably hope for in this whole trade conflict is that it ends in a draw.

David Scranton: How would that happen? Well, it could happen if  the tariff war remained a ‘tit for tat’ kind of thing which we have so far, where for every damage we imposed, China, for example, impose one equally damaging to us, ultimately we broke break even. But even that break scenario will only works if American consumers then substitute Chinese products instead by buying American made products; once these Chinese products becomes too expensive or no longer available. If instead, however, Americans app for Europeans imports that might be, let’s say, still available and still affordable. In that case, we would not break even, and in that case we would loss because of the trade war. So yes, a trade war is theoretically winnable, but is it easy to win? Well I guess that depends upon your definition of easy!

David Scranton: See, by large the very idea of a trade war is alarming to U.S business leaders-the reason for that is history.  Generally speaking, trade wars of the past have not been good on for the global or domestic economy. In fact, when George W. Bush, raised still tariff s in 2002 for example, the GDP decline in the United States lost about 200,000 jobs. Even the worst example, is Notorious Snoop Poliac which is passed by Congress in 1930. This virtually destroyed global trade and is widely blamed for deepening the great depression.

David Scranton: So, what are the potential economic pitfalls this time around? Well, let’s take those steel tariffs for example. In the United States United States, there are more people employed in industries that buy steels to make products such as cars than in those that they actually manufacture steel.  Tariffs could hurt them and companies could pass that are pain on to consumers in the form of higher prices and if higher prices then hurt demand that means layoffs and the major economic slow-down, possibly even another recession.

David Scranton: Now, Wall Street has already shown this year that it’s nervous about inflation by rising interest rates. If a trade war jacks up inflation, let’s say, by increasing the cost of imports it could force the federate reserve to raise to short-term rates more aggressively than planned. And there are other potential impacts worrying the market as well. We’ll talk more about those in just a bit.

David Scranton: Now it’s time to welcome our first guest, Gordon Chang. Gordon is a well-known author and lecturer whose books include “The Coming Collapse of China” as well as “Nuclear Showdown, North Korea takes on the World.” He has written and been interviewed extensively in recent weeks about the trade war threat with China, he has appeared on CNN, FOX News, CNBC, MSMBS, PBS, BBC, he Is all over the as well as Bloomberg television. That’s a good thing and we are happy to have him here today. Gordon welcome!

Gordon Chang: Thanks so much.

David Scranton: You know one of your most recent articles you said, ‘That this isn’t a trade war with China it’s something bigger than that,’ so what is it then?

Gordon Chang: It’s a struggle for control of the emerging technologies. You know 5G wireless communication, quantum communing, quantum communications and perhaps most important of all artificial intelligence. You know whoever is able to lead in these areas is going to have an important advantage in the next three decades or so, so it’s very important for us to make sure that we protect American innovation from furnishing Chinese trade practices, which has been in place for decades.

David Scranton: Do you believe what president Trump has claimed about the intellectual property theft here in the United States by China?

Gordon Chang: Well certainly, there is the IP commission report. They did a 2017 update to their landmark 2013 study and in the update they said that each year the U.S loses somewhere between $225 billion- 600 billion dollars in electoral property by theft. Not all of that is China, but most of it is. And, so we’re talking about a grievous lost to the American economy and therefore to the American society. You know, If we don’t have innovation in our economy we don’t have very much of an economy left. So it’s important that President Trump and everybody in the U.S join together and make sure that we have an economy that we can be proud.

David Scranton: Absolutely! Now you said that U.S.A holds all the cards in potential trade war with China. How is this so?

Gordon Chang: Well, first of all, we are the trade deficit country. Last year on the merchandise trade deficit was $375.2 billion. Now trade deficit countries don’t worry too much about trade friction because it’s much more than that. So for instance, in 2016 you had 68.0 % of China’s overall merchandise trade surplus related to sales to the U.S and that number went up last year to 88.8%. Showing amazing independence of the U.S, we got a bigger economy, you know our economy is like 19.4 trillion there theirs claim is 12.8. Big economies push small ones around. By the way our economy in reality is growing faster than theirs. And last of all, we got a stable economy and China has a fragile one, heading to a debt crisis. So I would say that we hold the high card.

David Scranton:  Are you saying that there economy is really not growing 79 % a year? I mean how, here you speak, is that really possible?

Gordon Chang: Yeah, I mean the last year from which we have a full set of statistics where china claimed 6.7 &% growth, but in the middle of last year the World Bank released a chart showing that China was growing at 1.2 %. And, if you think that stunningly low, that number is consistent with single most reliable indicator of Chinese economics activity, which is the consumption of energy. And, in 2016, the consumption of energy grew by only 1.4%. So, we are talking about Chinese economy that may be a little better last year, but it’s growing at a rate which is less than ours. And, so this gap between China and the United States is actually getting bigger.

David Scranton: Hmmm, so in the 30 seconds or so that we have left in this segment, tell us, is the persons taking the right approach by playing hardball with China?

Gordon Chang: Well, absolutely. You know, we would like to have a generous approach to China, but we done that for decade, it hasn’t worked. We have to try something new and that’s exactly what the President is doing.

David Scranton: That’s great! So trying to be trying to be friends with all the world isn’t the answer, as perhaps as past Presidents thought? I guess that makes some sense.

David Scranton: Gordon, please don’t go away. We’ll be right back with more after the break and you too stay with us. We’ll talk a lot about the Presidents’ approach and how this could affect the economies positively or negatively. Stay with us, we’ll be right back with more on The Income Generation.

David Scranton: So, just how nervous has all this trade war talk made Wall Street? Well, we actually did another show for the last week focusing partly on extreme levels of volatility, those that the market has shown for over two months now. In the past couple of weeks, President Trump’s tweets on rhetoric on trade and China’s responses to them have been the main; I should say the primary driver for that volatility. Recently, the markets finished yet another roller coaster week and while part of it was blamed on disappearing jobs report the main driver was another defiant ‘Trump tweet,’ about tariffs. ‘When you’re already 500 billion down, you can’t lose,’ he wrote, referring to the trade deficit he’s looking to reduce. In a follow up interviews, he’s also admitted that he’s aware that that moving forward might cause a little quote, ‘pain in the short term,’ referring mainly to the potential impact on the stock market. “I am not saying there won’t be a little pain,” he said on WABC radio, ‘but the market has gone up growing at 40%, 42 %, so we might lose a little bit it. But we’re going to have a much stronger country when we’re finished,” close quote. Opening the Wall Street a bit, Secretary Wilbur Ross was over blown, adding at the president and the administration trying to resolve a trade dispute through diplomacy. “…It wouldn’t be surprising at all if the net outcome from all this is some sort of negotiation,” as he told CNBC, “whether it happens by May or some other time, that’s another whole question. “Or some other time, know the whole question.

David Scranton: At the same time other trump officials reinforced that coming message, with Chief Economic Advisor, Larry Kudlow, saying that all the back and forth rhetoric might quote, “Turn out to be very benignant,” and all the coming comments seemed to work, prompting yet another cautious partial rally. But, you know as we’ve seen things can change in a heartbeat. And if investors are indeed overreacting to all the tough talk and all the rhetoric as Wilbur Ross suggested, it’s because they know the markets are already in a very vulnerable state to begin with. I discuss the reasons for this many times on past shows. The main one being that the stock market artificially inflated and overvalued relative to economic growth. Big investors are finally ready to acknowledge that the markets are ready to make fundamental sense again and it also pointed out two ways that that could happen. First, by corporate earnings quickly catching up to the over inflated stock price or, 2) by major market correction by relying stock valued with today’s corporate today’s corporate earnings.

David Scranton: The first scenario, although it isn’t impossible, it is highly unlikely. The second one, however, has indeed it happened already twice in the year 2000 and stock market history, says it’s likely to happen again. And it probably would it probably would have already happen if it were not for all the artificial stimulus pumped in the economy since 2009, that we at called quantitative easing.

David Scranton: Now with all this, it’s not hard to understand why investors appear so fearful of the potential negative impacts of an all-out trade war. If the tariffs imposed remains a ‘tit for tat’ system, back and forth, the impact could drastically undermined the intended benefits of the president’s corporative tax cuts, put breaks on economic growth, and actually lower corporative profits growth instead of increasing them. So the bottom line is, in its current vulnerable state, Wall Street is simply no longer you’ll be able to shrug off bad or potentially bad news like it’s able to do now for almost a decade and right or wrong, it appears to see the first to see the threat of a trade war as a bad thing.

David Scranton: Now, the question becomes, will investors ultimately be willing to give the President the benefit of the doubt that this will all be settled diplomatically and end up being good for American in the long run? And if so, for how long? Wall Street isn’t generally known for being patient, and socio-economic changes of this sort takes time. If you’ve watched our last few shows, you know there is already  a preponderance to suggest that the next sustained major stock market correction, one of somewhere between 40 or 70 percent, maybe just around the corner or even already even already on the way. Most of that evidence, it’s technical and fundamental and it doesn’t even take into account the many possible tipping point that could trigger this correction and based on what you’ve seen the last few weeks, I think it’s clear that the trade war issue, could certainly be considered, one of those potential tipping points. Oh, by the way, another worry at the heart of all this is the fact that China is America’s biggest creditor. And could, could skill back its purchases of U.S treasury as part of its trade war retaliation. What could that mean for interest rates in the bond market?  We’ll talk about that more coming up just a bit on the show

David Scranton: Now it’s time to welcome back, Gordon Chang. So, what’s your best take on all this? Do you think this is going to end up being a win for the United States and you think it could be a double win as the President indicated it could be?

Gordon Chang:  Yeah! This should be a win for the United States. You know in the past, US has had all the leverage, but the one thing we haven’t had was political will. Past Presidents just didn’t want to use American power for various reasons, one of them is because they understood…. and well they thought maybe that the United States didn’t have the power and I think they wanted to integrate China into the international system and so the goal of American foreign policy was to support China communist party, see President Trump, doesn’t think that way. He understands, he understands that we’ve got the power and he’s got the will to use it. Right now, I think that we should win this trade war; you know this trade war has been going on for decades. The Chinese, I’ve been waging it, we have been oblivious. President Trump understands that this is a struggle and good for him because that’s the way we are going to prevail.

David Scranton: Oh good! Hope you are right, that certainly for sure. You know, I have to ask it because you wrote the book it was a while ago, but, you talked about the coming collapse of China. How is that? You still feel that way? And if so why and one particularly when? Are we right are we getting closer to that brink?

Gordon Chang: Yeah, I think we’re getting closer. You know that book was released in 2001, in the middle of July 2001 and I said in the book, “Ten years the Congress Party would fail, so I am out of time” couple of things intervened, like for instance the 2008 down turn which helped the communist party sustain itself. But what they did was to sustain themselves they went out on a dead pitch and right now China’s tentative growth ratio is probably over 400 % when you include the hidden obligations. They are heading to a debt crisis. They are growing at may be 2% and but they are incurring debt at the pace of 20%. You can do that for a while state dominated economy like China has, but you can’t do that for too much longer. That’s why a lot of people these days are concerned about China’s debt crisis.

David Scranton: Well, you predicted that China would collapse by 2011 and I predicted that we have the third drop in the stock market by 2015, so you know God’s delays are not God’s denial, so it will be right in time. So I got to ask you this question then, North Korea, the weapons from North Korea because you wrote a book on that?  What’s going on here? Do you think they’re going to back down on this? It seems like they started back down already.

Gordon Chang: This is an issue; everyone says that Kim Jong Un and North Korean roller won’t give up its nukes, well that’s true, but only under the current incentives that he operates under. This is really a President Trump question because we have the elements of national power to disarm him short of the use of force but it will take a lot of political will, which no president up until this point has shown and that is basically imposing severe cost on Moscow and Beijing because of their support for Kim Jon Un. If we are willing to do that, I think we are willing to get a very good place on North Korea, them giving up their weapons of missiles, if we don’t do that I think we are going to be in a very difficult position.

David Scranton: Hmmmm, Quite interesting. Gordon, time flies when you’re having fun it has been a pleasure on our talk today. I really appreciate you being with us and you too stay with us we have a lot more today on The Income Generation. We’ll be right back after the break.

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David Scranton: A little earlier this year we did a whole show focusing on interest rates and at that time the potential threat for rising interest rates have been blamed for most of the marketing volatility that we were seeing then. In fact, it was one of the main issues blamed for the 10% market correction in early February that ushered in volatility that exists today. Of course the direction of interest rates remain concern , and as I pointed out earlier ,the effects of a full blown trade war could dramatically affect interest rates going forward.

David Scranton: As mentioned China has suggested, it could scale back its purchases of U.S treasuries as a retaliatory move in the trade war. The decreased demand could lower values and send long term rates higher. On the other hand, there is a pretty good reason to believe China would never actually follow through on that threat? Why? Because by doing so, they would hurt their own balance sheet by driving down the price of these bonds. At the end of the day, they were trying to collect interest on their money. With so many European countries, who would theoretically less stable than others and paying less interest on their bonds than ours, China doesn’t have many good options.

David Scranton: So, I believe it doesn’t seem likely for instance, that they are going to go out and buy Italy’s bonds instead or Spain’s bonds take more default risk to earn less interest just to spite us. But, even if that were to happen, it’s also a chance that’s domestic investors fleeing the stock market could rush to bonds, and offset the impact of China’s move. This thing we call affiliate equality, could keep long term interest rate stable or even drive them back downward. To some extent it appears that’s already what’s been happening as trade war worries have escalated.

David Scranton:  Now as you might recall, the interest rates on most bonds and the 10- year treasury for example, trended down or at least remain stable, keeping bond prices stable for most of 2017. Then in January bond market seemed to come out of a coma and finally realized that the rate on the 10 year treasury yield should be higher.

David Scranton: That was due to the unwinding of quantitative easing.  With that the Federal Reserve was selling some $30 billion worth of treasuries per month back into the open market, increasing the supply of bonds in order to drive prices down, drive interest rates up. That’s why the rate on the 10 year treasury yields jumped from 2.4 to 2.7% in January. And as I mentioned, the spike was largely blamed for the initial 10 percent market corruption in early February and then over the next several weeks to rate on the 10 year treasury yield started to yield and edge itself higher seemly to confirm Wall Street’s fears. Here’s where it gets interesting, the 10 years yield peaked  at 2.94% on February 21st and has dropped and has not passed that number ever since. In fact, throughout March and throughout April it remains lower than it was on Groundhog Day when that first sell off begin. That suggests that many investors jumping from the stock market has trade war fears increase have been jumping to the bond market, offsetting the Federal Reserve’s efforts to drive up interest rates.

David Scranton: And if you’ve watched our show on bonds and interest rates. You might recall me saying that I believe that the rate on the 10 year treasury may possibly manage to make it 2-3% or, maybe just a little bit over it in the near future. But, I predicted that’s going to hit a strong resistance level at that point. And today I still believe that’s true regardless of whether the stock market goes into a major sustained corruption, or it manages to temporarily rebound and probably add another15 or 20 % growth this year. The main reason as I pointed out then is because of people like us, everyday investors over the age of 50; that is The Income Generation.

David Scranton:  We are the nation’s largest demographic. And, as more and more of us shift towards secure income based investment options such as, bonds and bonds like instruments, as we neared retirement, the demand in the bond market strong must remain and that should keep prices up and hold long term interest rates in shack around or below that 3% sealing. And,  if  it apparent affiliate equality  we have been seeing the past two months continues with investors jumping from stocks to bonds as trade war fears mount, that will only add to the increase demand and potentially even push rates even lower. And again, even if the market does manage to rebound and temporarily start growing again, I don’t believe it will do so at the expense of the bond market. That’s because so many of us during retirement or already retired will stay committed to those secure income based investment options, regardless of market conditions, and all of this including China’s financial incentive to keep buying our bonds regardless of a trade war, is important to remember, anytime you hear an analyst or an advisor suggesting that a so- called bond bubble about to burst in my expert opinion, that’s simply not true.

 David Scranton: It’s now time to welcome my next guest, Jeffery Small. I am happy to welcome Jeff back to the show. He has over 30 years of experience as a Financial Advisor, he is highly sought after speaker and analyst who can be seen and heard regularly on shows like Fox Business and Bloomberg radio. He is also the author of the best selling book “Turning Financial Planning Right Side Up”

David Scranton: Jeff, welcome back to the show.

Jeffery Small: Hey, David, it’s great to be here. Thanks for having me again.

David Scranton: What…. you have been on the show now about four or five times and you still haven’t gotten the memo that you don’t need to dress up and wear a necktie on our show here. What’s going on? He’s making me look bad.

Jeffery Small: This is a patriotic tie. You know it’s red, white and blue. I kind of was feeling spirited today so I wanted to be patriotic, David.

David Scranton:  So about China’s….

Jeffery Small: That’s right

David Scranton: Prefect time, so what’s your take on all this China stuff. It has been affecting the markets; you’ve been following the market, gosh as closely as I do and these 500 points, 700 point swings, I mean it’s crazy. Do you think it’s warranted or a lot of the media? What’s your best take on this?

Jeffery Small: Well, David, at the end of a18 year bull market here, bear market, I’m sorry, bearish secular pattern would be in this for 18 years at the peak. And, so at some point the market is going to pull back to things in the market that’s causing these dyration, whether it’s rising rates, unsettled political issues, nationally or geopolitically as well as the trade issues really came to the forefront. But the good news is the street or Wall Street’s really focusing on earnings right now. It seems to be taking a back seat, the trade issue seems to be taking the back seat a little bit to what’s happening in the market hit and we  breakeven today for the year,

David Scranton:  Right, breakeven. You know, we’re never happy about breakeven but when you think about what happened after February 2nd in the markets, its Ground Hog day when the financial Groundhog saw a shadow and the market started to drop. All things considered breakeven isn’t too bad.

Jeffery Small: Not too bad so far but the volatility was to be expected. In January the market when up a little bit to 7%, we hit that peak January 26 and then the wheels came off  and so at some point, you know the market’s going to have some kind of gravity to it. They just don’t keep going up.

David Scranton: Ok, now you heard Gordon Chang. You know, as all of you heard Gordon Chang, what are your thoughts? Do you think that we’ve got the upper hand here, is that we’re eventually going to improve our situation with this? Or do you think this ‘tit for tat’ is just going to end up being break even every time we raise ours they raise theirs and nobody wins.

Jeffery Small: Well, the trades’ balances are so imbalanced right now with what’s going on. We have been the door mat of trade for the last 50 years in this country and finally somebody who’s raising to the top, to come out and say, look, we’ve got to fix this and it takes a deal makers, somebody who is business minded like President Trump to turn around and fix this. So yeah, I agree with Mr Chang. I think we’ve got complete leverage to be able to turn this around and this would be the first President in 50 years that’s on a trade deal to that benefits America and denuclearizes the North Korean and South Korean Peninsula.

David Scranton: So, you think it’s the art of the deal? Basically the principles in the art of the deal are going to get him to make this negotiation successful for our country. Um, if that happened then, we’ve talked before about the secular cycles in the market and that probably means that the market is going to go up and this could very well be the first time we recover from a secular bear market in 2013. Because, do you feel that way? Because the reality is, is that we can get this trade deficit you’ll score away imbalanced again it good for the stock market.

Jeffery Small: There’s no doubt it will be good domestically. So there’s a good chance that that could happen if we can fix the trader issues, but it will take time for that to ripple through the economy to see the benefits of the bottom line of course our Multinational Corporations like the S& P 500 with the Dow Jones.

David Scranton: And, quickly in 20 seconds or so that we have left with, what do you think about this risk of they are stopping to buy our bonds and what that does to interest rates? Is that a concern of yours bottom line or you think it’s just rhetoric?

Jeffery Small:  It’s really all rhetoric. China really forced to buy our bonds if they want to buy their goods and services it’s a symbiotic relationship, so that will stay play that won’t change at all.

David Scranton: That will stay in play for a long time. Well, I know you drove down here, I knew you plan to spend some more time with us, so stay with us. You stay with us also; we have a lot more from my good friend, Jeffrey Small. We come back after the commercial break. Stay with us, we’ll be right back with the Income Generation.

David Scranton: Most persons have heard the environmental slogan…..’Think globally …but Act locally.’ It’s a great slogan, not only be good practical piece of advice, it’s also good psychologically and it applies to more than just the environment. In thinking about things on a global scale, it’s easy to feel overwhelmed, that can lead to a sentence of helplessness, which leads to inaction. We think what can one person do? So the result, we do nothing, that same mind-set can be dangerous when something like the threat of something like the threat of a global trade war come along.

David Scranton: And this is an enormous issue with huge implications for the world economy. It’s only natural to feel a bit overwhelmed by it and to think what’s going to happen is going to happen. What can I do? Well, that’s where ‘Think globally… Act locally,’ is once again, great advice. Look at the issue from global perspective than a personal one. That’s how you’ll find an answer to the question, what can I do, as well as the motivation to do it, if you feel as though it’s in your best interest.

David Scranton: Here’s a good way to approach it. Step by step by step. First, sit down with a qualified financial advisor and review your portfolio. If you are retired or within 10 years of retirement, make sure your asset allocation right for retirement, meaning its set up to generate income through  interest in dividends range of 4- 6 % interest. Second, review your level of stock market risk in the light of all the drama and volatility we’ve experienced since early February. This as a trade war escalates and becomes a tipping point for the next major market correction, Could you end up getting caught in the downdraft? If the market falls between 40-70 percent has market history how suggest it would that impact your retirement goals? Third, if you determine your retirement is in jeopardy, take action, work with your advisor, to reduce your risk to better designed to help you meet your financial goals regardless of market conditions. And as I stress on last week’s show, I am not ready to say definitively that the next market correction is already on the way or even close at hand. In fact, I am willing to admit that the trade war or no trade war, the market could find its legs and again and regain its January peak even add another 10 or 20 % from there.

David Scranton: Remember that my forecast for 2018 was that this will be another double digit year for the stock market; either double digits on the upside or double digits on the down side, with really nothing in between, and I still stand by that production. That said, I also believe that there are technical fundamental as well has historical evidence available right now, in support of a major market correction. That investor over the age of 50, need to consider the risk reward trade off, very carefully before investing.

David Scranton: Remember the casino analogy, I shared with you before, if you went to the casino and discovered a game, where it paid you $15 if you won, but cost you $70 if the lost, would you play that game? Probably not! So now, think about how the analogy applies to the current stock market. If you decide not to reduce your risk in the best case scenario occurs, that trade war can get resolved then maybe the market rises in another 15 %, that you win, if you stay invested in the market rises. But the trade war becomes a tipping point in the market falls by 40- 70%, well then that’s what you lose. That’s why thinking ‘globally but acting locally or personally in this issue is so incredibly important. In fact the worst thing that you could do potentially is to allow yourself to feel overwhelmed and ended up doing absolutely nothing.  If you do that, then it will end up being too late.

David Scranton: Let’s welcome back Jeffery Small, bestselling author and President of Harper Financial Group in Melbourne Florida.

David Scranton: Let’s say we are wrong. Let’s say we are wrong in this to trade war, you and I are wrong, Gordon Chan is wrong and the trade war works against us, it’s a net negative. What does that do for us as a country? What does it do for the economy? What does that do for the stock market?

Jeffery Small: Well, definitely we’ll undermine the market its part of the reasons why we pulled back 9/10 % here from the January 2016 promotion forward in the market, so it will rattle investor confidence, rattle investor sentiment and will change the stock market dynamic.

David Scranton: Interesting rates, what do you think in that case again? If all of a sudden we’re importing Chinese goods or spending a lot more money doing so, just because of the tariffs and so on that caused inflation right, so what can that do to interest rates, you think that can caused interest rate to accelerate upwards?

Jeffery Small: Well, if there’s no demand in for our bonds, absolutely we could be stuck. I mean if the United States falls out of favour, and they stop buying our bonds, internationally what happens? Rates have to go up. That perfectly makes sense, and so the Feds are already on a tractor raised rate. And now, we can reprieved on rates and so rates have actually fallen but not as much as they raised them couple weeks ago, and so reality is when rates starts to move back up, regardless of what happens with our international favouritism on bonds or not, trying to buy them or not. We will see start to take heed as protects starts squeezing as that goes up.

David Scranton: And we have to come up with $1.1 trillion just to finance the year’s deficit. So $1.1 trillion does it ever ends? In the thirty seconds we have left in this segment, do you think that we can actually grow ourselves out of the deficit or do you think it’s going to be…?

Jeffery Small: It’s going to be really hard day, because we’ve got 600-800 billion of treasuries they were trying to sell out through quantitative tightening. As the Feds decides what deescalate the purchases they made to get us out of the mess in the first place we lose in 2008.

David Scranton: You make a lot of sense and of course that’s why he’s a very good friend of mine and that’s he’s also an author of the bestselling book. We’ll be right back with more from Jeff Small. We’re talking geopolitical things that you talked about a minute ago. You stay with us and we’ll be right back after the break.

David Scranton: Welcome back. We’ll be talking again with Jeff Small, the bestselling author of ‘Turning Financial Planning Right- Side Up’, President of Harper Financial Group in Melbourne, Florida.

David Scranton: Now, you have this patriotic tie on, and all that. You see, I am so patriotic; really I worry about our financial markets here in the U.S. I don’t think too too much about China in this because we really don’t invest in China.

David Scranton: Were you surprised when you heard Gordon Chang talk about the debt of GDP ratio in China of 400% or the GDP growth rate of less than 2%?

Jeffery Small: I really wasn’t shocked by that at all. It’s not the first time I have heard of in China’s books are really cooked. It’s over engineered their economy. They have leveraged out, they are maxed out, and they really need to go through severe financial restructuring if they want to really be considered growing their economy going forward. At some point they are going to have a bigger financial crisis than we will in the near future.

David Scranton: With all these people sitting here, a lot of the liberals and those that aren’t watching the show would say communism works, look they are getting steady growth of 7- 8 % growth percent over there in China, and communism is great! So I guess it comes right down to it, communism isn’t really that great, is it Jeff?

Jeffery Small: No, not even when you combine it with free market economics.

David Scranton: Yeah, that right, that right….

David Scranton: Hey, speaking of that, you know you  heard me allude  with Mr. Chang too, a good friend, the rocket man over there in North Korea and he was not quite optimistic about a positive outcome there in terms of disarmament. You know if, what if that escalates? It’s one of those geopolitical concerns you talked about couple segments ago. If that escalates, you think that could be a tipping point to cause that third major stock market drop that we’ve have been talking now for a long time on this show; of course you and I have been talking about it.

Jeffery Small: I don’t know if we would cause a stock market correction day, but it certainly will because the market to get jittery the same way it did with Trump’s tweet about launching missiles and they are coming right away. And so, I think what we’ve got to look at its lots of posturing going on from our country’s perspective and leveraging out Russia and leveraging out China to get what you want from North Korea to denuclearize the entire Peninsula, because we really can’t allow him to have nukes. He is a wildcard.

David Scranton:  Right, that’s right

David Scranton: Thirty seconds or so we have left. Hmmm, going in your area of expertise, right all income generation members age 50 and over, to hear all this rhetoric on TV, market response, around 700 points, 15 over. What would you tell them? What’s the best advice to them and of how they react to that and this news?

Jeffery Small: Well the best advice to them really is to make sure that they are going to avoid the next down turn, because zero becomes your hero. Make sure you find a way or a financial advisor that you can work with that’s going to show you to be market bullet proof this point in time.  The next 20 %, 25% upside is not going to help you if you go through the down turn, when it happens and it will happen at some point. Nobody knows then, not even the brightest minds on Wall Street.

David Scranton: Sound like you are saying that ‘cash is king,’ which I like. With that in mind I need to stop and get dinner on my way home but I forgot my wallet. Can you lend me a couple bucks since cash is king?

Jeffery Small: I will take you out and buy you dinner.

David Scranton: There you go, that even better, I love it! Dinner with my good friend Jeff Small and bestselling author.

David Scranton: Alright, stay with us and we’ll be right back. Thank you Jeff and thank you also and we’ll be right back for a segment here on The Income Generations.

David Scranton:  As you could probably imagine ridding contents for this show is someone somewhat challenging or the last two months giving how quickly things are changing in the financial markets. Naturally, the markets always fluctuate to some degree, but dramatically level of volatility that we are experiencing now definitely are not typical. As technical analyst has pointed out, they’re actually similar patterns of volatility we saw in the last two major market corrections. So, does that automatically mean the next correction is eminent? Of course not, no one can say for sure, that the threat of a trade war doing to be a tipping point for that third major market drops that we’ve been discussing for a long time.

David Scranton: As we saw on today show, there is actually the scenario in which this whole situation can be good for the United States, and we can end up reigning in our trade deficit, boosting our importing industry and adding to the GDP. All of which would probably help get the stock market back on track. At the same time a trade war can force interest rates up or if a correction takes hold of in-flight equality continues actually drives them further down. The point is that no one has a crystal ball, and all these different scenarios and potential outcomes can seem absolutely overwhelming

David Scranton: So just remember to ‘Think globally, but act locally.’ Consider the potential impact both good and bad, from your own house hold, your own family and your own life. Decide if you need to take out action, and if you so, then take it!

David Scranton: Thanks for watching if you are close to retirement and you really want to know how to protect and maximize your money, it’s absolutely essential that you stay informed and up to date and right here is where you can do it on The Income Generation. I am David Scranton, Thanks again; we’ll see you next week.

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