Brad here. As part of my Next World series on this blog, I have been discussing the themes and implications with Commonwealth analysts to try to determine what it will mean, over time, for how we invest. Anu Gaggar, our international analyst, put together this piece, which I think is worth sharing. Take it away, Anu!

Of course, here I am riffing on the famous headline published after President Ford refused to bail out New York City (see below). Yesterday, there is no doubt that markets were expecting a bailout from the Fed—and threw a tantrum when they didn’t get it.

It’s that moment you’ve all been waiting for—the 2018 Bubble of the Year Award (“the Bubby”)! This long-standing tradition (as of last year) brings together the strongest and weakest investment stories for a no-holds-barred match to see which stands out as the bubble of the year. This year, we have several strong contestants.

Several weeks ago, an advisor asked me to take a deep look at debt in the economy. I thought this was a great idea, both timely and important. In fact, I meant to get to it sooner but, well, things happened. When I did start to investigate, I realized that “debt” was many different topics, deserving of several posts. So, here we are, beginning a series that will resume in January. Fortunately, the news is not actually all that bad in most areas. Even in the ones where it is very bad (e.g., U.S. government borrowing), there are reasons to, if not be cheerful, than at least not to despair.

Both October and November were roller-coaster months. October took us down, and November took us further down only to bounce and finish slightly up. Now, as we move to the end of the year, we are seeing more downward movement, although there are signs that may be passing. As investors, we should probably be checking for whiplash, as this has been a wilder ride than we have seen in years.

We closed the last post in this series with the observation that, even if the U.S. “won” the trade war, there would be collateral damage—both here and throughout the world. That turned out to be a timely point, as we have seen in the financial markets over the past week.

As we approach year-end and you look at your investment statements, there is bound to be much discussion about how your investments performed. As has become usual in the past couple of years, there will be questions about and comparisons between what we expected and what we actually got. In other words, with the economy doing well, why aren’t your investments doing better?

Yesterday’s market drop reversed all of Monday’s gain and then some, reportedly on growing doubts regarding the exact terms of the trade war truce announced by President Trump. That might be the case, but I suspect the headlines pointing out that part of the yield curve had inverted played a bigger role in the decline. This inversion is usually a sign of economic trouble, so it would make sense for the market to pull back. The problem is that, while technically true, the inversion we saw typically indicates that trouble will show up in a couple of years—if it does at all. If the market was reacting to the inversion, it was overreacting.

We closed yesterday's post with the idea that the U.S. has been the indispensable market for all rising economies since WWII—starting with Europe under the Marshall Plan and then extending to Japan and subsequently to China and eastern Europe. As the essential market, the U.S. could compel obedience in other areas, notably security, and other countries were happy—or at least willing—to comply.

In the last post, we laid out both the U.S. imperative (keep the status quo and improve it if possible) and the Chinese imperative (make a successful economic transition to a developed, wealthy economy). We also outlined how China has changed its strategy from what has been so successful over the past 40 years, and we closed with a teaser on the U.S. response.