Now What?

This post Now What? appeared first on Daily Reckoning.

Stocks were up and away this morning, aloft on happy wings. And as stocks went up… records came down.

Both the Dow Jones and S&P established fresh highs today.

Today is — after all — when the United States and China stowed their differences… and came formally to terms.

President Trump and Chinese Vice Premier Liu He signed their names to a “phase one” trade accord late this morning.

What precisely did they pledge? AP draws the overall sketch:

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of goods from China.

For its part, Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration, China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products.

Once the handshakes were over, the president seized a microphone and gushed:

Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade with China. Together we are righting the wrongs of the past.

And so there is more joy in heaven this day. But will there be more joy on Earth the next?

We are not half so convinced. The wrongs of the past — if they be wrongs at all — may well remain wrong.

The warring parties have signed a truce, it is true. But truce is not peace.

Truce may be no more than a mere respite from arms, a temporary cessation of fire, a brief clearing of battlefield smoke.

Consider the terms of this truce…

It cuts in half tariffs on certain Chinese wares from 15% to 7.5%. Yet tariffs on some $360 billion of Chinese exports stand in place.

Perhaps two-thirds of Chinese goods remain under penalty. As do more than half of all United States shipments to China.

Today’s signing scarcely budges them.

Meantime, this phase one armistice leaves unaddressed China’s war aims, its peace terms, its strategic objectives.

Continues the AP wire:

The so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies — that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018…

Most analysts say any meaningful resolution of the key U.S. allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. And skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

Adds The New York Times:

The deal also does not address cybersecurity or China’s tight controls over how companies handle data and cloud computing. China rejected American demands to include promises to refrain from hacking American firms in the text, insisting it was not a trade issue.

Affirms Eswar Prasad, who formerly directed the International Monetary Fund’s China desk:

“[The deal] hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.”

And so the generals remain huddled over their charts… the cannons are still loaded… and the troops are ready to answer the bugle.

They only await orders from the commander in chief.

Ultimate peace — lasting peace — will therefore require a “phase two” treaty…

The president has vowed to tackle China’s multiple trade atrocities in phase two of negotiations.

That is why he has held most existing tariffs in place. These represent the stick end of the “carrot and stick” polarity.

He will wield them as clubs, forcing Chinese concessions in this crucial second phase.

But phase two must wait. The president has suggested — strongly — that negotiations may not proceed until this year’s election is decided.

Assume they do proceed…

Will Mr. Trump club China into submission? Will China throw down its arms… and come marching into camp?

Not if it means losing “face,” argues Jim Rickards:

Culturally, saving face may be more important to the Chinese. The Chinese are all about saving face and gaining face. That means they can walk away from a trade deal even if it damages them economically.

Meantime, the truce, the uneasy truce, enters force.

The Lord only knows if it holds…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Now What? appeared first on Daily Reckoning.

Now What?

This post Now What? appeared first on Daily Reckoning.

Stocks were up and away this morning, aloft on happy wings. And as stocks went up… records came down.

Both the Dow Jones and S&P established fresh highs today.

Today is — after all — when the United States and China stowed their differences… and came formally to terms.

President Trump and Chinese Vice Premier Liu He signed their names to a “phase one” trade accord late this morning.

What precisely did they pledge? AP draws the overall sketch:

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of goods from China.

For its part, Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration, China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products.

Once the handshakes were over, the president seized a microphone and gushed:

Today we take a momentous step, one that has never been taken before with China, toward a future of fair and reciprocal trade with China. Together we are righting the wrongs of the past.

And so there is more joy in heaven this day. But will there be more joy on Earth the next?

We are not half so convinced. The wrongs of the past — if they be wrongs at all — may well remain wrong.

The warring parties have signed a truce, it is true. But truce is not peace.

Truce may be no more than a mere respite from arms, a temporary cessation of fire, a brief clearing of battlefield smoke.

Consider the terms of this truce…

It cuts in half tariffs on certain Chinese wares from 15% to 7.5%. Yet tariffs on some $360 billion of Chinese exports stand in place.

Perhaps two-thirds of Chinese goods remain under penalty. As do more than half of all United States shipments to China.

Today’s signing scarcely budges them.

Meantime, this phase one armistice leaves unaddressed China’s war aims, its peace terms, its strategic objectives.

Continues the AP wire:

The so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies — that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018…

Most analysts say any meaningful resolution of the key U.S. allegation — that Beijing uses predatory tactics in its drive to supplant America’s technological supremacy — could require years of contentious talks. And skeptics say a satisfactory resolution may be next to impossible given China’s ambitions to become the global leader in such advanced technologies as driverless cars and artificial intelligence.

Adds The New York Times:

The deal also does not address cybersecurity or China’s tight controls over how companies handle data and cloud computing. China rejected American demands to include promises to refrain from hacking American firms in the text, insisting it was not a trade issue.

Affirms Eswar Prasad, who formerly directed the International Monetary Fund’s China desk:

“[The deal] hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.”

And so the generals remain huddled over their charts… the cannons are still loaded… and the troops are ready to answer the bugle.

They only await orders from the commander in chief.

Ultimate peace — lasting peace — will therefore require a “phase two” treaty…

The president has vowed to tackle China’s multiple trade atrocities in phase two of negotiations.

That is why he has held most existing tariffs in place. These represent the stick end of the “carrot and stick” polarity.

He will wield them as clubs, forcing Chinese concessions in this crucial second phase.

But phase two must wait. The president has suggested — strongly — that negotiations may not proceed until this year’s election is decided.

Assume they do proceed…

Will Mr. Trump club China into submission? Will China throw down its arms… and come marching into camp?

Not if it means losing “face,” argues Jim Rickards:

Culturally, saving face may be more important to the Chinese. The Chinese are all about saving face and gaining face. That means they can walk away from a trade deal even if it damages them economically.

Meantime, the truce, the uneasy truce, enters force.

The Lord only knows if it holds…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Now What? appeared first on Daily Reckoning.

Chris Temple from The National Investor – Thu 5 Dec, 2019

What will it take of the markets to truly care that no trade deal will be done?

Chris Temple wraps up the markets with a look into the recent trade comments out of both the US and China. The most interesting thing is the markets are still optimistic of some sort of a Phase 1 deal even when the overall tone has shifted more negative. With the December 15th tariff implementation deadline approaching will that finally be a time when the markets stop pricing in a deal. We wrap up the call by looking ahead to the jobs data tomorrow.

Click here to visit Chris’s site – The National Investor.

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.

Wall Street Falls for the Ruse

This post Wall Street Falls for the Ruse appeared first on Daily Reckoning.

The president has spoken…

A China trade accord can jolly well wait until next year’s election is done, he announced yesterday.

While the president spoke, the United States House of Representatives legislated…

China is allegedly roughhousing its Uighur (wee-gr) Muslim minority.

The House has passed legislation that denounces the inhumanity… and sanctions certain Chinese officials for their villainous participation.

Beijing is unamused — toweringly unamused.

Swift retaliation it has promised if the Uighur Intervention and Global Humanitarian Unified Response Act of 2019 assumes force of law.

In brief, neither party presently negotiates from goodwill.

Meantime, the Dec. 15 deadline draws near.

On that date fresh tariffs enter effect — absent a resolution.

Given the mutual asperity presently prevailing… a resolution is far from certain.

Is it any wonder the stock market turned in losses three consecutive sessions?

Thus today was the ideal occasion for a lovely trade rumor… a gorgeous sprig of catnip to excite, vivify and invigorate the animal spirits.

Global Times editor Hu Xijin, late yesterday:

I predict there is a high probability that President Trump or a senior U.S. official will openly say in a few hours that China-U.S. trade talks have made a big progress in order to pump up the U.S. stock markets. They’ve been doing this a lot.

You may hand that man a Gurkha Royal Courtesan cigar. His forecast rang dead center…

Word crossed the wires at 4:06 this morning, coming by way of Bloomberg:

The U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said… Recent U.S. legislation seeking to sanction Chinese officials over human rights issues in Hong Kong and Xinjiang is unlikely to impact the talks, one person familiar with Beijing’s thinking said.

The rumor’s source requested anonymity. But the scalawags at Zero Hedge point a razzing finger at Mr. Larry Kudlow:

There were naturally questions about the Bloomberg piece: like why does an “unknown” source who “thinks” the deal is imminent take precedence, when very known people, i.e., the U.S. president and [senior trade official] Wilbur Ross, both said a deal may not happen for almost a year… or why was this “respected” Larry Kudlow source so terrified to give his name on the record if everything checks out?

Mr. Kudlow is of course the president’s senior economic adviser — and professional optimist.

We confess it: We trust the rumor no further than we could heave a horse by its tail.

It claims, for example, “U.S. legislation seeking to sanction Chinese officials… is unlikely to impact the talks.”

But would you shake the hand of a man preparing to stab you with the other?

And we might remind you: The Chinese are notoriously sensitive to slights.

But the computer algorithms running Wall Street are gullible dupes. They will fall for anything…

Jilted 100 times by false promises, they salivated, swooned and fell for the 101st.

It is time to buy, they concluded… and set to work.

S&P futures jumped immediately on Bloomberg’s “news.” And the Dow Jones opened the day 200 points to the good.

The president did his own part to meet Mr. Hu’s overnight prediction… and goose the stock market.

Trade talks were “going very well,” he claimed this morning — one day after suggesting a deal could go on ice until next year’s election is decided.

The computers chose to believe this morning’s comments. The market leaked some steam towards the end of the day, it is true.

But the Dow Jones still posted a 147-point gain. The S&P came out 19 points ahead; the Nasdaq, 46.

But we come now to this question:

What happens to the stock market if Dec. 15 passes without a trade deal?

Won’t the same computer algorithms that pushed stocks up today… pull them down?

We suspect strongly that they will.

But by how much?

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Wall Street Falls for the Ruse appeared first on Daily Reckoning.

Chris Temple from The National Investor – Fri 15 Nov, 2019

As the melt up continues don’t ignore the issues in Hong Kong

Chris joins me to wrap up the week that again saw money flow into risk on assets and push US markets to all time highs. More optimum around trade and the Fed put, as Powell outlined in front of Congress continues to be the main support for these moves. However don’t forget about the issues in Hong Kong and how China’s potential actions could impact the entire financial system.

Click here to visit Chris’s site – The National Investor.

Weekend Show Politics – Sat 19 Oct, 2019

Hour 2 – Politics and The US Ecomomy
Full 2nd Hour

A bit of different format this week for the second hour. Please let us know what you think.

  • Segment 1and 2 – Josh Phillip Senior Investigative Reporter for The Epoch Times opines on the dangers to America and the rest of the world of mainland China.
  • Segment 3 and 4 – Big Al discusses the American economic environment with Rick Rule, Chairman of Sprott Global.

Segment 1
Segment 2
Segment 3
Segment 4

Chris Temple from The National Investor – Mon 7 Oct, 2019

China/US Trade Updates and The Result on Fed Policy

Chris Temple kicks off today with comments on the news that came out over the weekend regarding China’s comments on trade. China made comments that they are looking for a limited trade deal and will only be focusing on a couple items at the upcoming meeting. While this is not having a major impact on markets it does fly in the face of the optimistic talk we heard all last week. We also touch on the future of Fed policy and the possibility of a major QE program.

Click here to visit Chris’s site and keep up to date on his market calls.

Are You Ready for Another Recession

This post Are You Ready for Another Recession appeared first on Daily Reckoning.

Dear Rich Lifer,

Although the U.S. economy continues to grow and add jobs, talk of the dreaded “R” word is on the rise due to a number of worrying signs.

Yes, I’m talking about a “Recession”.

Between the ongoing trade war with China, an inverted yield curve, and the Federal Reserve lowering short-term borrowing costs, investors are starting to get spooked.

A question I get asked a lot is what should retirees do with their money when a recession is looming?

When the market crashed in 2008, an estimated $2.4 trillion disappeared almost overnight from Americans’ 401(k)s and IRAs.

The fear of losing everything to another recession is sending a lot of investors running for the hills.

However, there are steps you can take today to minimize losses during a recession, no matter your age or financial situation.

Here’s a checklist you can follow so that your investments and savings can weather any financial storm.

1. Start tracking your cash flow.

Step one in preparing for a recession is knowing where you stand. The best way to figure this out is by calculating your cash flow, or how much money you have coming in versus going out.

Knowing what your fixed and variable costs are each month as well as where your income is coming from will relieve some of the uncertainty should there be an economic downturn.

If you’re employed, there’s a high chance that you might get laid off during a recession, so you’ll want to know exactly how long your savings will last.

An easy way to begin tracking cash flow is with free mobile apps, like Mint or Personal Capital. You simply connect your bank accounts to these apps and the software tracks your transactions and categorizes your spending.

This way you know where your money is going each month and you can start setting budget goals or identifying expenses that can easily be cut in the future.

2. Top up your emergency fund.

Your best defense against economic hardship will be a well-funded emergency fund. Rather than rack up high-interest debt, you can tap your savings to cover basic living expenses.

As a general rule-of-thumb, I recommend building an emergency fund of 3-6 months worth of expenses. With talk of a nearing recession, however, it’s best to err on the conservative side.

The reason why an emergency fund is critical is because you’ll need liquid money to keep paying your bills. If you or your spouse lose your job, an emergency fund will come in handy to keep you afloat.

If you’re retired, you won’t have to worry about getting laid off, but you’ll still need an adequate amount of accessible cash in case your retirement accounts or pension take a hit.

3. Pay off outstanding debt.

With talk of a recession happening in the next year or so, it’s a good time to start aggressively paying down any bad debts you owe.

Should a recession strike, you’ll want your income going toward monthly living expenses and not paying the bank.

Plus, if you miss too many payments you could end up wrecking your credit score, which will make your life even more challenging when the economy recovers.

Also, whatever you do, don’t dip into your 401(k) to pay off debt, especially if you’re not yet retired. Start with high-interest debt first, like credit cards and build debt payments directly into your budget so you don’t forget.

4. Rebalance your investment portfolio.

Once you’ve taken care of your emergency fund and paid down any outstanding debts, it’s time to review your investments.

If you’re already retired or close to retirement, you’ll want to mitigate as much risk as possible but still maintain enough growth in your portfolio to pay for living expenses and outpace inflation.

Traditional wisdom of maintaining a 60/40 mix of stocks and bonds is no longer enough diversification.

The reason being that retirees are now living longer, which means your portfolio needs more room for growth. Look to diversify your portfolio to include a wide range of asset classes, like foreign stocks and bonds, this will put you in a better position to endure a downturn.

5. Manage your 401(k) wisely

If times get really tough, it can be tempting to want to sell or make significant alterations to your 401(k). My advice: don’t touch it.

Most likely, your 401(k) is part of your long-term financial plan, which means economic downturns are part of the deal. You don’t want to jeopardize any long-term gains by panic-selling the moment markets start dropping.

Lastly, if you’re not already maxing out your 401(k) contributions or taking advantage of any employer-match programs, make sure you do. That’s your money to keep.

Finally, understand that recessions are a normal part of the economy. They’re cyclical in nature and notoriously hard to predict. Control what you can by heeding the warning signs and preparing best you can.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Are You Ready for Another Recession appeared first on Daily Reckoning.