The world is starting to move sideways.
The market talking heads are so clueless.
It’s almost laughable listening to them trying to explain away in isolation how the pieces of the puzzle are starting to converge that will or already have ushered in, what we believe, will be an ugly bear market.
Believing the Fed can rescue anything and everything is so naive and ridiculous. We remain perplexed why JFK didn’t call in the Fed to end the Cuban Missile Crisis, or why President Trump doesn’t call upon Fed Chairman Jay Powell to unleash some QE to bring about peace in the Arab-Israeli conflict.
Global Geopolitical Instability
The rivets are starting to pop both in the U.S. and world.
We won’t mince words here. We believe much of the growing instability is the consequence of the narcissistic and incompetent leader of the free world named Donald J. Trump.
Full Disclosure
Full disclosure, we don’t like Trump as a president nor as a man. But we don’t believe our perspective is steeped in some sort of blind political partisanship but is more the result of a positive analysis of the totality of his policies and character. If the data points were different, we have no doubt our conclusions about Trump would be different.
We are independents or what California’s Secretary of State labels “No Party Preference (NPP).” We have no problem splitting tickets and often do. We generally don’t like voting for incumbents down-ballot.
We are right-of-center on most economic issues but believe the government should provide a strong, efficient, and effective safety net for those less fortunate and not born into the Lucky Sperm Club or who are temporarily down on their luck, which all of us could go there but by the Grace of God. If you are reading this post you are most likely part of the Lucky Sperm Club.
We are also golfers and believe in the handicap system. Those non-scratch economic players, such as people born into poverty with very high hurdles of escaping their plight should be given extra strokes to become competitive and to have skin in the game of life.
We believe in fiscal responsibility and that if the current budget trajectory continues big inflation will eventually come to burn away past liabilities that no way in hell will ever be paid back in hard currency but probably not before the deflationistas have another day in the sun. Can’t you just see this scenario setting up as the street cred of Modern Monetary Theory (MMT) is rising almost as fast as Beyond Meat (BYND) stock?
We are left of center on most social issues but respect others beliefs. Our motto is: no pushy our agenda onto others; especially our California values onto the conservative states unless constitutional issues are at stake.
The following is how we voted in the presidential elections since 2000 with a short justification. We will strategically vote the Republican ticket in the 2020 California primary but for Governor William Weld if he is on the ballot. Not so in the general in November, however.
2000 – George W. Bush: Tired of the lies from both Clintons and their lack of political principles. Though we thought Clinton did fairly well on economics, especially not spending the fiscal surpluses late in his administration as Larry Summers surely knew they were only a windfall and largely the result of the stock market bubble. Totally disagreed with the Clinton/Gore expansion of NATO, which botched efforts to bring Russia into the West, which the world now suffers the consequences.
2004 – John Kerry: Invasion of Iraq and the deception that justified it. Unforgivable. Bush won the election because he won Ohio, period. If Kerry had come out against gay marriage, which was the wedge issue driving that election along with scaring the American people about terrorism, Bush loses the election. Kerry came under intense pressure to denounce gay marriage and support the Ohio initiative opposing it but wouldn’t. That was a true profile in courage, in our book. Like trading, timing is everything in politics. Sadly, the country just wasn’t ready for same-sex marriage in 2004.
2008 – Barack Obama: Loved the Maverick, not so much Sarah Palin. Would have moved out of country knowing she was a heartbeat away from the Oval. Obama’s hope and unity rhetoric was moving. Also, was certain a McCain/Palin ticket, coupled with the Congressional Republican ideologues could not restore the crashing global economy. Was very worried of a complete financial and economic collapse and justifiably so.
2012 – Mitt Romney: Didn’t like Obama’s “fat cat” divisive rhetoric. Was impressed that the Obama administration pulled the global economy out its death spiral, however. Totally underestimated the markets’ confidence in the dollar after massive expansion of deficits and central bank balance sheets. Wasn’t satisfied with the pace of structural economic reform and not putting Wall Street in the dock after the Great Financial Crisis (GFC).
2016 – None of the above: Slim Pickins for POTUS in 2016. Could there have been two worse choices? Would have never thunk of voting for Hillary but if my vote really counted on the margin — it doesn’t because we live in perirenal blue California — would have held my nose and voted for her.
Global Trade And The Decline Of Bretton Woods
Markets still don’t get it. Trump is an economic nationalist, not a free-trader, much less even understands the basic tenets of trade. Most of the 2020 Democratic candidates are not much better but may change their tune once they see the damage the trade war does to most Americans and the global economy.
The following tweets speak for themselves.
President Donald Trump’s trade war with China is increasing the odds that America will be thrown into a recession, according to investment bank Goldman Sachs. – NBC News, August 12t
The Great Unraveling
Hong Kong
What exactly did Trump say to Xi at the G20 in Osaka last month that led to this FT headline? What signal or mixed signals did POTUS send to the Chinese government about the U.S. reaction if China’s PLA starts cracking heads in Hong Kong? The fact that we don’t even know is a problem in and of itself.
The words of the President, who speaks for the United States government and the rest of the free world, have huge consequences and any ambiguity can invite aggression or destabilize global or regional stability.
Go no further than Gulf War I.
Gulf War Documents: Meeting between Saddam Hussein and US Ambassador to Iraq April Glaspie
July 25, 1990. Eight days before the August 2, 1990 Iraqi Invasion of Kuwait
July 25, 1990 – Presidential Palace – Baghdad
U.S. Ambassador Glaspie – I have direct instructions from President Bush to improve our relations with Iraq. We have considerable sympathy for your quest for higher oil prices, the immediate cause of your confrontation with Kuwait. (pause) As you know, I lived here for years and admire your extraordinary efforts to rebuild your country. We know you need funds. We understand that, and our opinion is that you should have the opportunity to rebuild your country. (pause) We can see that you have deployed massive numbers of troops in the south. Normally that would be none of our business, but when this happens in the context of your threat s against Kuwait, then it would be reasonable for us to be concerned. For this reason, I have received an instruction to ask you, in the spirit of friendship – not confrontation – regarding your intentions: Why are your troops massed so very close to Kuwait’s borders?
U.S. Ambassador Glaspie – We have no opinion on your Arab – Arab conflicts, such as your dispute with Kuwait. Secretary (of State James) Baker has directed me to emphasize the instruction, first given to Iraq in the 1960’s, that the Kuwait issue is not associated with America. (Saddam smiles)
On August 2, 1990, Saddam massed troops to invade and occupy Kuwait. — Global Research
North Korea
While Trump exchanges “beautiful letters” with Kim Young-un, North Korea gets stronger and more dangerous by the day,
Trump, meanwhile, has praised Kim during for sending him a “very beautiful letter” last week despite the uptick in tests over the past three weeks — but he shouldn’t be celebrating. The increased pace of tests and revelation of new weapons means his chances of striking a nuclear deal with Pyongyang are slipping, all while North Korea builds weapons that threaten South Korea and Japan — both close US allies that host thousands of US troops.
Which means no matter what Trump says, North Korea has become much more dangerous — not less — since he took office.
“This is an intentional reminder that if diplomacy fails, North Korea will only be stronger and more capable today than it was four years ago,” Lindsey Ford, a former Asia security specialist at the Defense Department, told me. – VOX, August 12th
The following is nothing short of buffoonery.
We were warning of this while our friends were calling for a POTUS Nobel Peace Prize.
How embarrassing for any American with a sense of history and pride.
NATO
We believe the words that have and will be the most destabilizing to the world is what President Trump said about NATO and Montenegro last summer. We wrote about it the day after in our post, The Day Strategic Ambiguity Died,
The hits just keep on coming.
There is a new sheriff in town, the old order is crumbling, and we are afraid the world is going to become much more unstable in the next few years. Assets markets are incapable of discounting or pricing it in.
President Trump Throws Montenegro Under The Bus
In an interview with Fox’s Tucker Carlson last night, President Trump seemed to question the raison d’être of NATO and foreign alliances in general.
Tucker: So membership in NATO obligates the members to defend any member that is attacked. So let’s say Montenegro, who joined last year, is attacked, why should my son go to Montenegro to defend it from attack?
President Trump: I understand what you are saying. I have asked the same question. You know Montenegro is a tiny country with very strong people… They may get aggressive, and congratulations you are in World War III…But that is the way it was set up, don’t forget I just got here.
There are errors and misrepresentations in the above, such as NATO’s Article 5, which has only been invoked once in the aftermath of 9/11, and does not apply when the NATO member is the aggressor.
…
Xi’s One China Policy
What worries us about the Tucker Carlson interview is a potentially destabilizing effect on geopolitics, especially with China.
How do you think Xi Jinping, Trump’s new BFF, who is becoming increasingly aggressive about his “one China” policy, interpreted the interview?
Maybe something like:
“Why should my son go to Montenegro Taiwan to defend it from attack?”
Wars begin with misperception and miscalculation. — GMM, July 18, 2018
Upshot
We are certainly are not blaming Trump for all that ills the world. But he is the leader of the free world and has made things worse, not better, in our opinion analysis.
His economy in the first thirty months is only marginally better in a very narrow sense than the economy in the 30 months before he took office.
Economy
After increasing the cumulative deficit by over $2 trillion, almost $1 trillion more than the last 29 months of the Obama administration, the average compounded GDP growth rate is only 35 bps higher. That is an expensive 35 bps of growth, folks.
Moreover, inflation is higher and nonfarm payroll job creation is lagging by almost one million jobs.
Tight Financial Conditions
Trump likes to blame the Fed that “his” economy is not doing better. This is complete nonsense. Financial conditions have been much easier for President Trump according to most measures even though the Fed has been raising interest rates.
Dollar
Most important is that the trade-weighted dollar index has stabilized under Trump, albeit at a higher price, after strengthing more than 20 percent in the last two years of the prior administration. That was a huge economic headwind in President Obama’s second term and really hit the manufacturing sector hard.
MAGA
If you believe Trump has Made America Great Again, you have been played like a fiddle, folks. The gaslighting has worked.
President Trump likes to play golf, tweet, and watch cable news. No judgment, we do too, but who is minding the store at the USG? He has fired almost everyone and anyone with just a modicum of competence, believing he knows better than anybody , even more than the Generals, for example.
That is what is most scary and echos what President Bush #43 said after listening to the Trump inaugural speech,
‘That was some weird shit,’ George W. Bush reportedly said with characteristic Texas bluntness” – Business Insider
Buckle up.
We sense it is about to get very ugly. We hope we are wrong.
We see a fading confidence in the value of free markets and international trade, forgetting that conflict, instability and poverty follow in the wake of protectionism. We’ve seen the return of isolationist sentiments, forgetting that American security is directly threatened by the chaos and despair of distant places. – President George W. Bush
Global Macro Monitor 