Removing emotion from economic analysis

If you were to read much of the global economic press today, there would be a common thread: Although the global economy is chugging along quite nicely, especially in the United States, pessimism is warranted, in large part because of tariffs and the threat of trade wars.

However, if you have read these pages (as well as our new commentary section), you would know that news headlines, especially as they relate to economic and investment news, have to be taken with a grain of salt. Why is that? Well, there’s an old expression regarding journalism: If it bleeds, it leads. Of course, that means that bad news often makes the headlines, and that’s because bad news is considered to attract more attention.

Remember the “housing bubble?”

investment facts versus fiction

There’s perhaps no better example of this phenomenon in Canada than news about Canada’s housing and construction sectors. For the better part of this last decade, there has been constant speculation about an upcoming bursting of the “housing bubble.” But, has it happened yet? No. There’s another factor to keep in mind: it’s human nature. People can sometimes be pessimistic, and that includes not only economic journalists, but economic and investing experts, too.

So, let’s take a closer look at today’s global economy. On the U.S. front, almost all economic numbers are at historic highs: the stock market, the jobs markets — including for minorities — as well as economic outlook, which has been high virtually the moment President Trump came into office. An agenda of low taxes and deregulation, which Trump has since initiated, can do that.

Real-world events set the agenda

As for tariffs and trade wars, just yesterday the United States and Mexico reached a bilateral agreement to revise NAFTA, which takes off the table one of the greatest uncertainties related to Trump’s strategy on tariffs and trade wars. And, although Canada has been left out of these current talks, Trump’s threat of tariffs on Canada’s auto industry might make Prime Minister Trudeau eager to reach some kind of a deal, as many of Trump’s strong initial positions have done in the past.

So, again, if there is a lesson in all of this, it’s to always read negative economic headlines with some caution. Just as it’s the business of the press to attract as many readers as possible, it’s the job of those of us in the investment sector to provide sober second thought and separate emotion from some of the underlying realities.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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