Global Macro Monitor

Lots of these being drawn up by the new U.S. administration.

The one that scares us most is this:

Mattis: US will defend Japanese islands claimed by China – CNN

And today we hear this:

China sails warships near islands Mattis vowed to defend for Japan – Fox

Plus the realpolitik of this:

…tough talk with China will likely lead Beijing to test the new administration’s resolve militarily. Whether the president is ready for such a confrontation is entirely unclear. For the moment, he seems not to have thought much about the future ramifications of his rhetoric and his actions.  – Foreign Policy

Xi Jinping will have to exude and appear strong either for domestic politics or to “wag the dog” to deflect attention from a potential flailing economy:

Every five years China holds a selection process that can do the same thing. Communist Party officials tout it as evidence of a well-ordered rhythm in their country’s politics. This year it may turn out as unpredictable as America’s election in 2016.

The people up for re-selection are the 350-odd members of the party’s Central Committee, the political elite, along with its decision-taking subsets: the Politburo, the Politburo’s Standing Committee (a sort of inner cabinet) and the army’s ruling council. The choice of new leaders will be made at a party congress—the 19th since the founding one in 1921—which is expected to be held in Beijing in October or November, and at a meeting of the newly selected Central Committee which will be held directly afterwards. – Economist

The U.S. and China could back themselves into war if both parties  adopt this as their new anthem:

.

And will equal this:

And that is only the financial “fallout“,  which will largely be irrelevant.

Hope the President is drawing those red lines with a red pencil like this and with a very effective and efficient eraser.

But that would equal this:

Therefore,  we render the equation unsolvable….

And may be why gold and bond prices are moving higher together.  Can they move higher together on inflationary expectations?   Not consistent and totally absurd.

Our bet, this relationship, albeit, and most likely, temporary is geopolitical worries.  Maybe not so much about an imminent  U.S.- China conflict, but,  something more general, such as increased uncertainty and the expectations shock about the continuity of the Pax Americana that has ruled the world since World War II.   Or, it could be just a simple unwind and short squeeze in both.  Stay tuned.