Kim Parlee speaks with Phil Davis, founder of philstockworld.com and PSW Investments on the economic headwinds in 2019 and how a continuing trade war between the U.S. and China could spark a manufacturing recession.
Welcome to Money Talk. It is January, and that's usually the time my next guest comes on and gives us his options trade of the year. But he gave us that trade early when he came on our show late last year. It was IBM. So we're going to see how that has done so far.
But don't worry, if you missed that call, Phil is bringing us many more trading ideas. We're joined by Phil Davis. He's founder of philstockworld.com and PSW Investments. And he joins us from sunny, warm Fort Lauderdale.
You know, I'm kind of grinning and baring my teeth when I say that what we're enduring here in Southern Ontario. But good to have you with us, Phil. Before we get into--
--trading ideas, let's just talk a bit about the markets first. The Fed came out today. The market seemed to like what the chairman had to say-- patience. And the market, again, liked that.
Well, yeah. I mean, it's a stunning turnaround. I mean, a month ago, they were talking four hikes and reducing their balance sheet. And now, they're talking no hikes, no real need to do any hikes anytime in the near future, and the balance sheet is fine the way it is. Don't worry about it. If you think about it, they are almost giving 1% to the market and a trillion dollars less of bond sales. I mean, it's a hell of a gift to them.
It sure is. Now, let me ask you, how does that-- I mean, they had a lot to do with some of the volatility going into the holidays. Things have steadied out a little bit kind of thing after a fairly deep sell-off and then a rebound. What's your take in terms of where the markets are right now, given what the Fed had to say and I guess some of the concerns we're seeing about China?
Oh, that's a lot of things.
I mean, look, I think it worries me that the Fed is so terrified of anything bad happening to the economy. Like, they did a little rate hike in December. The market completely freaked out.
Not just about that, though. I mean, we have the Brexit, we have the trade talks. We have the, you know-- this government shut down. It's all insanity. It's not just the Fed, but they're trying to shoulder the burden.
Now, the reason they're terrified though is because they've already blown everything. They've got a $5 trillion balance sheet. The country is $22 trillion in debt.
They can't afford it-- They can't save us from another recession. So they can't afford to let it happen. And they'll pull out all the stops just to even stop us from dipping.
And do you think-- I mean, you say they can't save us from a recession. Do you see that coming? Or do you think, because the Fed's taken their foot off the gas it actually is looking a lot better?
Well, sadly, I would have to say-- and they're not taking the foot off the gas. Like I said, they just gave us a 1% rate reduction over what it's supposed to be next year. You know, rates are supposed go up 1% next year. They shaved a point of it. That's massive.
The change in the attitude of the Fed is huge, and that's what's really scary, though. Why, why, what are they afraid of? And I think, unfortunately, I've said for a very long time, and I even said it in October, I said the Fed has one more big, big save left in them, and which is why we actually bought the crap out of the last correction when it hit 20%.
That was our buy point. And we jumped back in and started buying things. Now, we're very aggressively bullish. But we're about to start pulling back on that, because I'm not sure how much further this rally has to go.
Hm. I guess, you know, we're going to get in the trades in a couple minute in terms of what you see. But again, you're feeling less bullish. You're starting to pull back a little bit. Again, for somebody watching right now, I mean, what are your red flags? What would you tell them be careful about?
Well the China thing, is I'm not sure that the China trade deal is ever going to get worked out. And if it escalates-- right now, we're talking about a little bit of stuff. But Trump is talking about putting tariffs, 25% on $500 billion worth of goods.
China is going to fully retaliate the same way. The repercussions are going to spread around the world. And we'll plunge into a manufacturing recession around the world.
That's kind of depressing, plunging into a manufacturing recession.
Yeah. Well, that's-- I mean, look, how many times have we seen this happen in history of trade wars? That's why we don't have trade wars anymore until this year, suddenly.