It’s really only an arm-wrestle

THE latest plunge on Wall St is both qualitatively and quantitatively different to the 20 per cent plunge before Christmas.

That was all about The Fed – Wall St both panicking at the prospect of further interest rate rises through 2019 and attempting (as it always does) into blackmailing The Fed into backing off.

As always it worked: The Fed quickly did a 180 and promised no rate rises in 2019 and Wall St promptly recovered all the losses to return to all-time record highs.

This is all about China, and specifically President Donald Trump’s trade war. What scared investors is that this time it looked like China would fight back and so who knew where it could disastrously end.

Well, there are three reasons why the fear is at least vastly overstated and arguably exactly wrong.

First, this is not the 2019 trade and economic version of the MAD – Mutually Assured (nuclear) Destruction – fears of the pre-1986 Cold War era.

Neither President Trump nor the Chinese will let it go too far. Their very different styles have the same ultimate ambition. The Chinese especially have too much invested in keeping the US sweet.

Secondly, there’s The Fed. It’s not only backed off ‘snatching away the cheap money punchbowl’, it’ll pour in more and more hooch – as much as needed to keep the party going.

There’s all the focus on our RBA cutting its rates; the Fed cutting would be far more portent.

Finally and arguably most important, President Trump has made America Great Again. That’s especially the case with its economy – and that means ultimately a buoyant Wall St.

Yes, certainly fasten your financial seat belts for a bumpy rise. But one that will create opportunities.