Terry McCrann: It’s going to be a bumpy ride

THERE’S one certainty emerging from the unfolding trade war: this is going to be the Year of Volatility — with a very big capital-V, says Terry McCrann.

ON Thursday we got two pieces of very good news.

Then it all got swamped that evening by President Trump going to war — only, thankfully, for the moment, a money war — with China and Wall St plunged.

READ MORE: ASX BELTED IN TRUMP, CHINA TRADE TIT-FOR-TAT

TERRY MCCRANN: WHY WE’RE NOT BOUND FOR A GREAT DEPRESSION

On Friday our market went through 6000, going the wrong way, and something like $35 billion was wiped off share values and so, your superannuation.

As the market was plunging, incidentally, the banking royal commission was bashing our banks big time.

Hmm, is it really a good time to be doing that?

Not only, for all their evident sins, did our banks keep our money safe through the GFC — and I, for one, would like them to keep doing that in whatever turmoil lies ahead — the big four are the biggest component of the share market and so, your superannuation?

Not exactly incidentally, that was the fifth time this year — so far — that the sharemarket index had gone through 6000; that’s three going the wrong way and two going the right way.

We are likely to see it happening a good few more times this year. As I’ve been explaining, we started the year with the “correction we had to have”; and while, no, it didn’t point to a Great Crash far less a Great Depression, it did mean we faced a year of volatility.

Trust me: you really do want to see the index popping back and forth through 6000.

Why? Because the alternative to such “popping” is that it just keeps going down and away from 6000.

So, let me go back to Thursday’s “good news” which got swamped by Trump’s tariff tirade and Wall St’s wobble.

US president Donald Trump signs trade sanctions against China on March 22, 2018.

First, we woke up to the totally predictable and universally predicted news — it was indeed as certain as dawn following the dark — that the Fed in Washington had raised its official interest rate. And that it is now, not exactly incidentally, above our RBA’s official rate for the first time since 2000.

The week seen as a whole did pose the “interesting” question whether new Fed head Jerome Powell would have gone ahead with the rate rise — and even more, the Fed predictions of many more to come through 2018 and 2019 — if he’d known what President Trump was going to announce later that day.

I’d suggest the answer is yes and indeed I would hope that would’ve been true. That the “trade war” is more about negotiating a “Trump deal” than serious financial conflict.

Rising interest rates — to stress, over there, in the US — is good news for the world and good news for us in particular.

It would signal that the US economy — still the biggest and most important in the world — was not just in good shape but sustainable good shape. Ultimately also, that’s what matters to the economy that is directly most important to us — China. That matters far more than any negative out of the trade “war”.

Rising US rates are fundamentally desirable for two other reasons. The big one is that the world has been living in a zero-rate and very unhealthy bubble. We need normal rates for a normal — and more sustainable — global economy.

Secondly, rising US rates — and our RBA not following — will strengthen the US dollars against the Aussie. Money will flow in to the US dollar and into America. We need a — slightly — lower Aussie dollar for a more competitive local economy.

The second bit of good news was once again very strong jobs numbers. We’ve had record jobs growth partly because we’ve also had record population growth. But also because wages haven’t broken out — what normally makes businesses reluctant to hire.

I’d argue that’s a pretty good mix: low inflation and low wages growth, but many more jobs. It also just quietly is really helping the federal budget — and that makes more likely (and more viable) personal tax cuts.

But was all that good news washed away by the trade war and the subsequent Wall St (and local) market plunge?

The short answer is no. I do not believe we are really going to get into a full-on 1930s-style trade war (and even more hopefully, also not a replay of the real one that followed in the 1940s).

I could be wrong of course: when you play what I call “clifftop poker” there’s always a risk you can go over.

My base thesis is that the US economy will keep on keeping on and China’s will also be OK. But we were always going to run into “volatility” with rising (US) rates hitting asset values (shares and property) and indeed intersecting with what’s happening in the operating (again, US) economy.

I don’t think the trade war will really change that. But what it has done is helped guarantee that 2018 will now be a Year of Volatility with a very big capital-V.

@heraldsunbiz