Australia/Peru FTA kicks in

The Minerals Council of Australia (MCA) has welcomed the enforcement of the Peru-Australia free trade agreement (PAFTA), providing Australian businesses with a gateway to Latin America. Under PAFTA, Peru will eliminate 99.4% of its tariffs, including on valuable Australian resources such as iron-ore, copper, nickel, coal, mineral fuels and oil.

US revokes WTO subsidy preferences for some developing nations

The Trump administration is changing a key exemption to America’s trade-remedy laws to make it easier to penalize about two dozen so-called developing countries including China, India and South Africa. The US on Monday narrowed its internal list of developing and least-developed countries in order to reduce the threshold for triggering a US investigation into whether nations are harming US industries with unfairly subsidized exports, according to a US Trade Representative notice.

South Africa will caution Trump against ‘premature’ trade review

South Africa’s government will tell President Donald Trump’s administration that its review of a preferential trade agreement that could put as much as $2.4-billion in exports at risk is premature and potentially damaging for both economies. The US Trade Representative will start public hearings on Thursday to review the nation’s duty-free access to the US market under the so-called Generalized System of Preferences, its oldest and largest trade-preference program for the world’s poorest economies.

Canada PM wants USMCA deal ratified quickly, opposition says not so fast

Canadian Prime Minister Justin Trudeau on Tuesday urged legislators to quickly approve a new continental trade pact but the main opposition party said it wanted to study the deal, indicating the ratification process could drag on. Canada is the only one of the three signatories not to have formally blessed the United States-Mexico-Canada Agreement (USMCA) deal and officials fret the process may well last until April. This could irritate US President Donald Trump, for whom the pact was a major political victory in an US election year.

REVEALED: The Trade of the Decade

This post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

Dear Reader,

Yesterday we snuck into the future… and smuggled out a worrisome vision:

The S&P will end the decade 50–60% lower than where it began the decade.

Our snooping revealed that “mean reversion” will run down the elusive stock market at last.

That is, the long arm of statistical law will finally collar its man.

Yet as we wondered yesterday: Can a “trade of the decade” lock in your wealth?

Can it be your Rock, your anchor against stock market catastrophe?

If so… what can it be?

Today we rip the wrapping paper off the trade of the decade.

But first, what other visions did our adventure into the future reveal?

Here is a brief sketch of the 2020s as we saw them, a tour of the horizon…

The Next Two Presidential Elections

President Trump will retain his throne this November.

The economy will gutter along before sinking into woeful recession in 2022 or early 2023.

The Federal Reserve will leap to action. Interest rates will go to zero — and yes, below zero.

Quantitative easing on the scale of the Marshall Plan you will see.

But all attempts will be vain.

The Federal Reserve will stand discredited, embarrassed, helpless.

In the 2024 presidential election, the American people will invite in a “progressive.”

He/she/hir, we could not identify the winner — the haze was thick, the picture grainy — will sign into law some version of Modern Monetary Theory (MMT).

It will differ vastly from the Federal Reserve’s quantitative easing. Quantitative easing was contained within the banking system. It largely prospered Wall Street… and largely bypassed Main Street.

The American people were left to scratch by on the leavings.

But MMT promises to pour money directly onto Main Street — and Maple Street and Oak Street and Pine Street and Birch Street.

Everything for Everyone

The print press will go into fantastic and ceaseless operation. It will promise to fan a roaring whirlwind of prosperity.

Off the presses will fly the wherewithal for Medicare for All, universal college education, guaranteed employment at $15/hour, a Green New Deal, etc.

It will give a good original impression. The economy will jump, thrill and excite… after dozing lo so many years.

And the authorities will finally have their 2% inflation, sustained.

MMT will receive a highly favorable press. What ogre, what misanthrope, what dastard could be against it?

But a paper prosperity is a false prosperity. It is the eternal quest to lunch for free… and the immemorial dream of cranks.

That world has no existence… at least not upon this Earth.

MMT will give an overall increase of the price level — but without a corresponding increase in goods, products and services.

The Stirrings of Inflation

After decades of muted (official) inflation, inflation’s initial gurglings and bubblings will catch the American people off their guard.

But after some hard experience, they will recalibrate their expectations. They will begin to hunker in against the expectation of rising prices.

A chance spark will light an inflationary brush fire. It will soon jump the perimeter. Before long it will spread like prairie fire… carried along by the gusting winds of sentiment.

And so MMT will ultimately kindle a fine inflationary blaze.

The authorities will be eager to get water on it. But they will discover it rages beyond all control.

Can it happen so fast? Yes, it can happen so fast.

Explains Jim Rickards:

MMT advocates also seem to think inflation can be dialed back or tweaked at will. Maybe they’ll say we’ll only spend $90 million on a Green New Deal instead of $97 trillion. They think they can dial it down. But they can’t. Once inflationary expectations set in, they take on a life of their own. It’s a nonlinear system.

It’s like moving the control rod in a nuclear reactor. If you get it wrong by just a little, you can melt the reactor down and kill a million people…

Inflation is not a linear phenomenon but a nonlinear phenomenon that can spiral out of control before you can do anything about it.

The fiscal authorities will truly have a tiger by the tail. But what can they do?

No Good Options

They can kink off the oxygen feeding the fire. That is, they can turn off the print press.

But a paper prosperity requires ever-increasing amounts of paper. Shutting down the press would murder it.

The late-lamented Paul Volcker put down inflation in 1981 by lifting interest rates to 20%. But the debt level then prevailing was a trifle — a pimple against today’s Matterhorn.

Today’s creaking, debt-addled economy may not withstand 5% rates… much less 20%.

But if authorities let the fire run, it may burn until nothing remains to burn.

What will they decide?

It is at this point — 2027 or 2028 — that our vision of the future turned to static.

And perhaps it is just as well, given the hell-mouth scene we report.

‘It Can’t Happen’

You may laugh the preceding out of court. The “experts” certainly will.

But did the experts foresee the 2001–02 dot-com smash-up? Did those same experts holler about a subprime mortgage crisis beforehand?

And how many would have told you this in 2007?

That negative interest rates would soon become reality… or that “quantitative easing” would soon become a household term?

Indeed… how many would have told you Mr. Donald J. Trump would one day be president?

Yet they came to be, all of them.

Do you wish to peer around the next bend? Do you wish to steal an unauthorized glimpse of the future?

Then you must range out ahead of the herd. You must venture out upon the thin, spindly branches, risking a fall. You must shoo away consensus.

And you may need to fall in with disreputable company. As our co-founder Bill Bonner recently reminded us:

To find the new truth, we have to go far out on the knowledge spectrum to the edgy part… the shady and speculative part… where the kooks, geniuses and gurus are.

Come we now to the “trade of the decade”…

The Candidates

Is the trade of the decade some promising, youthful technology company?

Is it a manufacturer of driverless autos, or artificial intelligence?

Is it a wager on China — or a wager against China?

Is bitcoin the trade of the decade — or a rival cryptocurrency?

None of these is the answer. Then what is the answer?

Colleague Byron King recently sat at a business meeting where Mr. Bonner was likewise sitting.

During the proceedings Byron cleared his throat, faced Mr. Bonner… and requested his trade of the decade:

“Well,” he said…

“When I look at what’s going on with the world, with the U.S. dollar, politics, everything…”

The room was silent. You could hear a pin drop. You could detect the vibe of grinding vertebrae as people strained their necks to pick up on Bill Bonner’s latest Trade of the Decade…

Mind you — gold was Mr. Bonner’s trade of the previous decade. It was also his trade of the decade prior.

Did gold satisfy its advertising?

“If you followed Bill Bonner’s Trade of the Decade for 2000–09,” Byron reminds us, “you more than tripled your money, in terms of dollars.”

Plenty handsome. But what about the decade just vacated?

“If you bought into Bill’s Trade of the Decade for 2010–19, you went from $1,100 to just over $1,500, or a 36% gain… admittedly with a ride.”

The Trade of the Decade

So what is Mr. Bonner’s trade of this freshly hatched decade? Has he found an alternative to gold?

In Mr. Bonner’s own words:

I’d have to say stick with gold. I can’t think of anything else that’s as well set up to hold value and deliver gains.

Thus you have your trade of the decade — gold — ancient, fusty, unresponsive, unglamorous gold.

Gold will provide you a potent antidote to the monetary toxins above described. And if the stock market is knocked flat this decade?

Gold should help keep you upright.

Thus we speak our piece for gold.

Might we report a faulty vision of the future?

It is entirely possible. Our eyes have failed us before.

If erring, we find solace in this one supreme fact:

We face no consequences for our botchwork.

On Jan. 3, 2030 — 10 years from today — no living soul will recall a single word we wrote this day.

But if proven correct, we will be certain to remind you…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

REVEALED: The Trade of the Decade

This post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

Dear Reader,

Yesterday we snuck into the future… and smuggled out a worrisome vision:

The S&P will end the decade 50–60% lower than where it began the decade.

Our snooping revealed that “mean reversion” will run down the elusive stock market at last.

That is, the long arm of statistical law will finally collar its man.

Yet as we wondered yesterday: Can a “trade of the decade” lock in your wealth?

Can it be your Rock, your anchor against stock market catastrophe?

If so… what can it be?

Today we rip the wrapping paper off the trade of the decade.

But first, what other visions did our adventure into the future reveal?

Here is a brief sketch of the 2020s as we saw them, a tour of the horizon…

The Next Two Presidential Elections

President Trump will retain his throne this November.

The economy will gutter along before sinking into woeful recession in 2022 or early 2023.

The Federal Reserve will leap to action. Interest rates will go to zero — and yes, below zero.

Quantitative easing on the scale of the Marshall Plan you will see.

But all attempts will be vain.

The Federal Reserve will stand discredited, embarrassed, helpless.

In the 2024 presidential election, the American people will invite in a “progressive.”

He/she/hir, we could not identify the winner — the haze was thick, the picture grainy — will sign into law some version of Modern Monetary Theory (MMT).

It will differ vastly from the Federal Reserve’s quantitative easing. Quantitative easing was contained within the banking system. It largely prospered Wall Street… and largely bypassed Main Street.

The American people were left to scratch by on the leavings.

But MMT promises to pour money directly onto Main Street — and Maple Street and Oak Street and Pine Street and Birch Street.

Everything for Everyone

The print press will go into fantastic and ceaseless operation. It will promise to fan a roaring whirlwind of prosperity.

Off the presses will fly the wherewithal for Medicare for All, universal college education, guaranteed employment at $15/hour, a Green New Deal, etc.

It will give a good original impression. The economy will jump, thrill and excite… after dozing lo so many years.

And the authorities will finally have their 2% inflation, sustained.

MMT will receive a highly favorable press. What ogre, what misanthrope, what dastard could be against it?

But a paper prosperity is a false prosperity. It is the eternal quest to lunch for free… and the immemorial dream of cranks.

That world has no existence… at least not upon this Earth.

MMT will give an overall increase of the price level — but without a corresponding increase in goods, products and services.

The Stirrings of Inflation

After decades of muted (official) inflation, inflation’s initial gurglings and bubblings will catch the American people off their guard.

But after some hard experience, they will recalibrate their expectations. They will begin to hunker in against the expectation of rising prices.

A chance spark will light an inflationary brush fire. It will soon jump the perimeter. Before long it will spread like prairie fire… carried along by the gusting winds of sentiment.

And so MMT will ultimately kindle a fine inflationary blaze.

The authorities will be eager to get water on it. But they will discover it rages beyond all control.

Can it happen so fast? Yes, it can happen so fast.

Explains Jim Rickards:

MMT advocates also seem to think inflation can be dialed back or tweaked at will. Maybe they’ll say we’ll only spend $90 million on a Green New Deal instead of $97 trillion. They think they can dial it down. But they can’t. Once inflationary expectations set in, they take on a life of their own. It’s a nonlinear system.

It’s like moving the control rod in a nuclear reactor. If you get it wrong by just a little, you can melt the reactor down and kill a million people…

Inflation is not a linear phenomenon but a nonlinear phenomenon that can spiral out of control before you can do anything about it.

The fiscal authorities will truly have a tiger by the tail. But what can they do?

No Good Options

They can kink off the oxygen feeding the fire. That is, they can turn off the print press.

But a paper prosperity requires ever-increasing amounts of paper. Shutting down the press would murder it.

The late-lamented Paul Volcker put down inflation in 1981 by lifting interest rates to 20%. But the debt level then prevailing was a trifle — a pimple against today’s Matterhorn.

Today’s creaking, debt-addled economy may not withstand 5% rates… much less 20%.

But if authorities let the fire run, it may burn until nothing remains to burn.

What will they decide?

It is at this point — 2027 or 2028 — that our vision of the future turned to static.

And perhaps it is just as well, given the hell-mouth scene we report.

‘It Can’t Happen’

You may laugh the preceding out of court. The “experts” certainly will.

But did the experts foresee the 2001–02 dot-com smash-up? Did those same experts holler about a subprime mortgage crisis beforehand?

And how many would have told you this in 2007?

That negative interest rates would soon become reality… or that “quantitative easing” would soon become a household term?

Indeed… how many would have told you Mr. Donald J. Trump would one day be president?

Yet they came to be, all of them.

Do you wish to peer around the next bend? Do you wish to steal an unauthorized glimpse of the future?

Then you must range out ahead of the herd. You must venture out upon the thin, spindly branches, risking a fall. You must shoo away consensus.

And you may need to fall in with disreputable company. As our co-founder Bill Bonner recently reminded us:

To find the new truth, we have to go far out on the knowledge spectrum to the edgy part… the shady and speculative part… where the kooks, geniuses and gurus are.

Come we now to the “trade of the decade”…

The Candidates

Is the trade of the decade some promising, youthful technology company?

Is it a manufacturer of driverless autos, or artificial intelligence?

Is it a wager on China — or a wager against China?

Is bitcoin the trade of the decade — or a rival cryptocurrency?

None of these is the answer. Then what is the answer?

Colleague Byron King recently sat at a business meeting where Mr. Bonner was likewise sitting.

During the proceedings Byron cleared his throat, faced Mr. Bonner… and requested his trade of the decade:

“Well,” he said…

“When I look at what’s going on with the world, with the U.S. dollar, politics, everything…”

The room was silent. You could hear a pin drop. You could detect the vibe of grinding vertebrae as people strained their necks to pick up on Bill Bonner’s latest Trade of the Decade…

Mind you — gold was Mr. Bonner’s trade of the previous decade. It was also his trade of the decade prior.

Did gold satisfy its advertising?

“If you followed Bill Bonner’s Trade of the Decade for 2000–09,” Byron reminds us, “you more than tripled your money, in terms of dollars.”

Plenty handsome. But what about the decade just vacated?

“If you bought into Bill’s Trade of the Decade for 2010–19, you went from $1,100 to just over $1,500, or a 36% gain… admittedly with a ride.”

The Trade of the Decade

So what is Mr. Bonner’s trade of this freshly hatched decade? Has he found an alternative to gold?

In Mr. Bonner’s own words:

I’d have to say stick with gold. I can’t think of anything else that’s as well set up to hold value and deliver gains.

Thus you have your trade of the decade — gold — ancient, fusty, unresponsive, unglamorous gold.

Gold will provide you a potent antidote to the monetary toxins above described. And if the stock market is knocked flat this decade?

Gold should help keep you upright.

Thus we speak our piece for gold.

Might we report a faulty vision of the future?

It is entirely possible. Our eyes have failed us before.

If erring, we find solace in this one supreme fact:

We face no consequences for our botchwork.

On Jan. 3, 2030 — 10 years from today — no living soul will recall a single word we wrote this day.

But if proven correct, we will be certain to remind you…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: The Trade of the Decade appeared first on Daily Reckoning.

Agreement reached by US, Canada and Mexico – again – to replace NAFTA

Canada, Mexico and the United States have agreed to a fresh overhaul of their quarter-century-old regional trade pact after negotiators approved changes to a preliminary deal struck last year, and officials will sign the new agreement on Tuesday. The deal, which still needs the approval of lawmakers in all three countries, adds more stringent oversight of the pact's labor provisions demanded by US Democrats, changes that Speaker of the House Nancy Pelosi said made it an "infinitely better" deal than the one struck between the Trump administration, Canada and Mexico in 2018.

Trade Wars Just Getting Started

This post Trade Wars Just Getting Started appeared first on Daily Reckoning.

Markets are eagerly awaiting the conclusion of the so-called “phase one” trade deal between the U.S. and China.

Both parties are trying to reach a mini-deal involving simple tariff reductions and a truce on new tariffs along with Chinese purchases of pork and soybeans from the U.S.

The likely success or failure of the mini-deal has been a main driver of stock market action for the past year. When the deal looks likely, markets rally. When the deal looks shaky, markets fall.

A deal is still possible. But investors should be prepared for a shocking fall in stock market valuations if it does not. Markets have fully discounted a successful phase one, so there’s not much upside if it happens.

On the other hand, if phase one falls apart stock markets will hit an air pocket and fall 5% or more in a matter of days.

But even if the phase one deal goes through, it does not end the trade wars. Unresolved issues include tariffs, subsidies, theft of intellectual property, forced transfer of technology, closed markets, unfair competition, cyber-espionage and more.

Most of the issues will not be resolved quickly, if ever.

Resolution involves intrusion into internal Chinese affairs both in the form of legal changes and enforcement mechanisms to ensure China lives up to its commitments.

These legal and enforcement mechanisms are needed because China has lied about and reneged on its trade commitments for the past 25 years. There’s no reason to believe China will be any more honest this time around without verification and enforcement. But China refuses to allow this kind of intrusion into their sovereignty.

For the Chinese, the U.S. approach recalls the Opium Wars (1839–1860) and the “Unequal Treaty” (1848–1950) whereby foreign powers (the U.K., the U.S., Japan, France, Germany and Russia) forced China into humiliating concessions of land, port access, tariffs and extraterritorial immunity.

China has now regained its lost economic and military strength and refuses to make similar concessions today.

In order to break the impasse between protections the U.S. insists on and concessions China refuses to give.

This points to the fact that the “trade war” is not just a trade war but really part of a much broader confrontation between the U.S. and China that more closely resembles a new Cold War.

This big-picture analysis has been outlined in a speech given by Vice President Mike Pence in October 2018 and a follow-up speech delivered on Oct. 24, 2019. Both speeches are available on the White House website.

Secretary of State Mike Pompeo has also added his voice to the hawks warning that China is a long-term threat to the U.S. and that business as usual will no longer protect U.S. national security.

IMG 1

Pictured above are Vice President Mike Pence (l.) and Secretary of State Mike Pompeo (r.). Pence and Pompeo have taken the lead in the public criticism of China by the Trump administration. In a series of speeches and interviews they have pointed out egregious human rights violations, blatant theft of intellectual property and threatening military advances that should cause the U.S. to treat China as more of a geopolitical adversary than a friendly trading partner.

The views of Pence and Pompeo, often captured under the heading of the Pence Doctrine, were neatly summarized by China expert Gordon G. Chang, author of The Coming Collapse of China, in a Wall Street Journal Op-Ed on Nov. 7, 2019, quoted below:

The Trump administration is heading for a fundamental break with the People’s Republic of China. The rupture, if it occurs, will upend almost a half century of Washington’s “engagement” policies. Twin speeches last month by Vice President Mike Pence and Secretary of State Mike Pompeo contained confrontational language rarely heard from senior American officials in public.

“America will continue to seek a fundamental restructuring of our relationship with China,” the vice president said at a Wilson Center event on Oct. 24 as he detailed Chinaʼs disturbing behavior during the past year.

Some argue the vice presidentʼs talk didnʼt differ substantively from his groundbreaking October 2018 speech, but these observers fail to see that in the face of Beijingʼs refusal to respond to American initiatives, Mr. Pence was patiently building the case for stern U.S. actions.

Moreover, the vice presidentʼs thematic repetition was itself important. It suggested that the administrationʼs approach, first broadly articulated in the December 2017 National Security Strategy, had hardened. That document ditched the long-used “friend” and “partner” labels.

Instead it called China — and its de facto ally Russia — “revisionist powers” and “rivals.”

At a Hudson Institute dinner last Wednesday, Mr. Pompeo spoke even more candidly: “It is no longer realistic to ignore the fundamental differences between our two systems and the impact… those systems have on American national security.” Chinaʼs ruling elite, he said, belong to “a Marxist-Leninist party focused on struggle and international domination.” We know of Chinese hostility to the U.S., Mr. Pompeo pointed out, by listening to “the words of their leaders.”

The U.S.-China trade war is not the anomaly globalists portray. It’s not even that unusual viewed from a historical perspective. Retaliation from trading partners is all in the game.

Free trade is a myth. It doesn’t exist outside classrooms. France subsidizes agriculture. The U.S. subsidizes electric vehicles. China subsidizes a long list of national champions with government contracts, cheap loans and currency manipulation. Every major economy subsidizes one or more sectors using fiscal and monetary tools and tariffs and nontariff barriers to trade.

Trump’s tariffs on China in January 2018 were reputedly the start of a trade war, but the war was actually begun by China 24 years earlier when China devalued its currency (1994) and continued when China joined the WTO (2001) and immediately started to break WTO rules.

The trade battle is now joined, but no critical issues have been resolved and none will be in the near future. The U.S. cannot accept Chinese assurances without verification that intrudes on Chinese sovereignty.

China cannot agree to U.S. demands without impeding its theft of U.S. intellectual property. This theft is essential to escape the middle income trap that afflicts developing economies.

The EU is caught in the crossfire. The U.S. is threatening to impose tariffs on German autos and French agricultural exports as part of an effort to force an end to German and French subsidies to favored interests.

The U.S. will win the trade wars despite costs. China will lose the trade wars while maintaining advantages in intellectual property theft. Trade wars will continue for years, even decades, until China abandons communism or the U.S. concedes the high ground in global hegemony.

Neither is likely soon.

Regards,

Jim Rickards
for The Daily Reckoning

The post Trade Wars Just Getting Started appeared first on Daily Reckoning.

Miners welcome RCEP agreement

The resources sector has welcomed the conclusion of the Regional Comprehensive Economic Partnership (RCEP) agreement. The RCEP is the world’s largest trade agreement covering 15 countries in our region with a population of more than 2.25-billion, a combined gross domestic product (GDP) of $25.8-trillion and nine of Australia’s top 15 trading partners.