The Ceasefire Will Not Hold - Prepare Now

Last Saturday, President Trump concluded his meeting with Chinese President Xi Jinping, bringing forth what appeared to be a major victory for both the US and China.

As Trump exclaimed in a tweet the following Monday, “Relations with China have taken a BIG leap forward! Very good things will happen.”

According to the Trump White House, China had agreed to “reduce or remove tariffs” on US car imports. They’ve also agreed to begin buying US agricultural, energy, and industrial goods “immediately.”  And finally, both countries agreed to a 90-day timeframe to reach a “breakthrough” on matters concerning intellectual property, tech, and economic policy.

It sounded like a great win/win, up until the truth began to emerge: that no deal had been reached, no resolution had been agreed upon.

So what are we to make of the statements coming from the White House on the “extraordinary” meeting that took place? Hot air?

Since the meeting’s conclusion (three days ago), there had been a steady stream of conflicting reports between Washington and Beijing.

Beijing never reported agreeing to any of these terms. They didn’t even mention agreeing to the 90-day truce.

As China’s statement suggested that both sides ought to “work toward scrapping all tariffs,” it’s important to note that the US statement did not reflect this notion.

In other words, neither side could even produce an agreeable account of the meeting.

But they did agree to refrain from imposing new tariffs, as Geng Shuang, spokesperson for the Chinese foreign ministry told reporters on Monday:

"We agreed to hold off on imposing new tariffs. This agreement is quite significant since it has stopped our trade dispute from escalating and also opens up new prospects for win-win cooperation."

Essentially, we have an agreement to hold off on further trade war escalation; a ceasefire. But we have neither a deal nor resolution.

The question is whether the ceasefire might eventually lead toward a positive outcome. Will the ceasefire even hold?

And to those questions, investors have expressed their overall sentiment and opinion through the actions that brought forth a near 800-point market bloodbath.

Goldman Sachs appears to agree with the overall market sentiment:

The specter of higher and broader U.S. tariffs remains, and the underlying issues clouding the trade relationship are deferred to further negotiations. With additional time to pursue negotiations, we think the chance of a comprehensive deal that involves rollback of tariffs is [unlikely].

Economically and politically, both Trump and Xi have a lot at stake. And with US markets crumbling, the economy on the verge of recession, and with Chinese markets in bear territory, their economy slowing to a crawl and sitting on a cracking foundation of debt, both Trump and Xi respectively have a lot to fear.

So where does this leave us "average" investors and retirees? There has been massive inflow toward the utility sector, which makes sense for those who can stay invested in the markets through the coming downturn.

But not everyone has that option, as not everyone is willing to stake everything on a defensive play, potentially waiting for a number of years to break even.

Remember, when the bear market comes out of its slumber, when a full-blown recession hits the economy, all market sectors go down.

Completely exiting the markets might also prove highly disadvantageous, as investors, particularly retirees, need sustained portfolio growth.

Perhaps it’s time to convert your stocks into assets that will grow during a recession while protecting your purchasing power from the effects of inflation. Or perhaps it’s time to hedge by holding a reasonable amount of equities, debt, cash, and metals.

If you need assistance in coming up with a personalized strategy to protect your wealth, contact us at GSI Exchange.