Casualties of the Trade War

Trade wars are good and easy to win, according to one of President Donald Trump’s most famous “tweets,” but the smart money on Wall Street seems to disagree. The Dow Jones Industrial average plummeted a scary 799 points on Tuesday, the other major stock market indices dropped a similar 3-plus percent, and the clear cause was Trump’s apparently ongoing trade war with China.
After a dinner meeting with Chinese President Xi Jiping at the G-20 gathering Argentina on Saturday Trump announced that he’d won such majors concessions from China as huge agricultural buys from American farmers and eliminating any tariffs on American-made automobiles, and was therefore prepared to pause a trade war that has thus far proved disastrous for both countries, which led to big stock market gains on Monday. By Tuesday the Chinese were denying they’d made anything like the extraordinary concessions that Trump had bragged about, Trump’s economic policy advisors were walking most of it back, and Trump himself was “tweeting” that “President Xi and I both want this deal to happen, and it probably will. But if not remember, I am a Tariff Man.” A later “tweet” shouted that “We are either going to have a REAL DEAL with China, or no deal at all – at which point we will be charging major tariffs against Chinese product being shipped into the United States.” Despite the poor grammar, the “tweets” clearly communicated that the trade war continues, and won’t be easily won, so the smart money on Wall Street responded accordingly.
On our way home from an evening chore we heard one of the right-wing talk radio talkers say that Trump had nothing to do with the stock market drop, and he somehow blamed it on the Apple and Boeing companies instead, but Trump and his apologists always find someone else to blame. We’re more inclined to believe the smart money opinion of the JPMorgan financial juggernaut, which told its investors in a trading note that “It doesn’t seem that anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality.” We’re not impressed much by JPMorgan’s prose style, either, but it does clearly communicate the truth of the matter.
Trump’s apologists would do better to argue that China’s trade policies well deserve an aggressive response, as they do indeed charge unfair tariffs and make the theft of American intellectual property a condition of doing business with American companies and benefit from the slave wages paid to many of China’s workers, but it’s harder to argue that Trump is winning. As bad as China’s trading policies might be, Trump was claiming full credit for a booming stock market and rising commodity prices when he declared the trade wars with China and most of the rest of the industrialized world, so he can’t dodge blame for things going downhill ever since. Trump’s bad habit of doing his end zone dance before he reaches the goal line make him look the more ridiculous to the American public and on the world stage every time, and harder for him to make that great deal he’s always promising. China’s dictator Xi doesn’t doesn’t have to worry about public opinion, and although world opinion doesn’t favor him it does take him seriously, and China’s economy is either the biggest or second-biggest in the world, depending on how you figure it, and prematurely boasting about the concessions you won from him probably isn’t the best negotiating strategy with a wily Chinese leader and his traditional Chinese obsession with saving face.
The sort of low-key and culturally-sensitive and behind-the-scenes negotiations that might have yielded improved trade relations between China and a formidable American economy and steadfastly principled  and experienced American president aren’t Trump’s style, however, and for now we expect more tariffs and “tweets” and stock market downturns. In the long run Trump might yet get the greatest deal ever with his bull-in-a-china-shop approach, if you’ll forgive the culturally insensitive cliche, but on Tuesday the smart money wasn’t betting on it.

— Bud Norman


The State of the Dis-Union

President Barack Obama gave his annual State of the Union address Thursday night, and barring the remote possibility that those quadrennial conspiracy theories about a presidential coup at long last prove true it will be his last. The speech marks a point in history when just a few weeks more than a year a left until the end of the Obama error, there is still some faint hope left that at least the next four years after that will be at least somewhat better, and we are glad of such small favors. Everything else about the speech, alas, did little to hearten to us about the true state of the Union.
The speech began with a promise to be brief, which of course was not kept, and went downhill from there. Without any major policy initiatives or other big ideas to announce, and with no hope of getting anything that he might have thought of past the Republican-dominated Congress he has brought into being, Obama mostly used the occasion of his last prime-time network special to make the case that he truly is the Messiah that his post-religious mania of a campaign in ’08 promised. He cited the seemingly healthy unemployment rate of 5 percent but neglected to mention that the number of working age Americans actually working is at a 38-year-low and getting lower, or that the thousand points the Dow Jones averages have already shed in this still-new year has everybody spooked that it’s going to get worse yet, and we doubt he convinced any of his scant viewership here in flyover country that happy days are here again.
There was talk of how deficits have been cut in half since the record-setting first years of his administration under a compliant Democrat-controlled Congress, but not talk of the $8 trillion in debt that has been racked up in his seven years. He mentioned the supposed millions of Americans who now have health insurance under Obamacare, but he didn’t mention how many of them are getting better health care under the Medicaid program they’ve wound up with, or how much more the rest of the country is paying for their premiums, or that randy younger hipsters are forbidden to purchase the catastrophic plans that would have been their best bet in a free market system and that celibate nuns are being forced to purchase contraceptive coverage to subsidize those young hipsters’ appalling sex lives, and that it all seems destined for the long-predicted death spiral of fiscal insolvency, and that at this point relatively few Americans are any longer sold on Obamacare.

There were the Reagan-esque uses of specially invited heroes, with this the honorific chair being filled by one of those pitiable Syrian refugees, presumably a more a savory character than the Syrian refugees who have been implicated in a number of gang rapes in western cities in past weeks, and an empty chair for the victims of National Rifle Association-inspired gun violence, but none for those killed in Benghazi or the Chicago’s gang districts, and we doubt anyone will be persuaded by that.

There’s that breakthrough deal with Iran to allow it regional hegemony and apocalyptic nuclear status anytime it wishes, along with a $150 billion signing bonus, but that went unmentioned because of Obama’s usual bad timing. His embarrassing dismissal of the Islamic State as the “jayvee team” of terrorism just before it gained control of an Indiana-sized territory, and his premature declaration that the terror group was “contained” just before it launched deadly attacks against Russian airliners and Parisian rock ‘n’ roll fans and the social services workers of San Bernardino, apparently kept him from touting his touting his peace breakthrough with Iran just hours after that country took 10 American sailors hostage. He did blather on about those crazy Republicans who seem to think that Islam might have something to do with the 1,400-year-old clash between Islam and the once Judeo-Christian West, but we sense that even Obama realizes that nobody out there in flyover country is still buying that. There was also something about Vice President Joe Biden curing cancer with another moonshot, but we’ll skeptically await the results.
The most striking part of the speech by far was Obama’s uncharacteristically humble concern about the political rhetoric that has resulted from his seven years in office and the year of campaigning that preceded it. “It’s one of the few regrets of my presidency,” he shockingly said, “that the rancor and suspicions between the parties has gotten worse than better. There’s no doubt that a president with the gifts of Lincoln or Roosevelt might have better bridged the divide, and I guarantee I’ll keep trying better so long as I hold this office.” There’s some uncertainty as to whether he was referring to the Republican or Democratic Roosevelt, but in either case it’s a touching use of the old humble bit. It certainly represents an improvement over telling his loyal opposition that they can still be involved in government so long as they “sit in the back of bus,” or advising his Latino supporters to “punish their enemies,” or charging that his opponents want dirty air and water and what’s worst for everybody, or any of the similar rhetoric that has characterized the last eight years of Obama’s national prominence, but we’ll have to await the results of that promise as well. We don’t doubt that our president regrets that his “get in their faces” and “bring a gun to a knife fight” style of rhetoric that has suddenly allowed a bumptious billionaire and sudden Republican to employ equally harsh and ad hominem rhetoric against the status quo that Obama insists is so comfortable. Obama might have been grousing at least in part about the more honest self-described Vermont Sen. Bernie Sanders, who is currently gaining ground in the Democratic Party’s presidential race by admitting those dire work force participation rates and other glum economic realities and proposing even kookier solutions, but in any case he at least forced to concede that is legendary oratorical gifts have not proved adequate to the moment.
There’s another year and a few weeks left of America’s enemies seizing on the mont to advance the evil plans, and so far it doesn’t look like a roaring year for the economy, and even Obama is meekly conceding that the public discussion he has dominated over the past eight years about what to do about it it is likely to yield any solutions, and we are left with a less sanguine assessment of the state of the Union than our president can offer.

— Bud Norman

The Chinese Model and Its Flaws

Not so long ago, before the shakiness of the Chinese economy started shaking the rest of the world’s stock markets, some reputedly smart people were insisting that China was a model to be emulated. The New York Times’ star columnist and best-selling author Thomas Friedman, for instance, once wrote “Forgive me, Heavenly Father, for I have cast an envious eye on the authoritarian Chinese political system, where leaders can, and do, just order that problems be solved.”

div style=”text-indent:20px;”>It was a damned fool thing to say even at the time, even by the standards of The New York Times’ editorial page, and has since been revealed as such by the full percentage points or more that the Chinese catastrophe seems to be yanking away from the the the DJIA and S&P and the STOXX and Footsie and the NIKKEI and the rest of the acronyms and nicknames of all those panic markets in every nook and cranny of the world. Still, it’s easy to understand the appeal that a system where the reputedly smart people “can, and do, just order than problems be solved” would have to those who think they possess such wisdom and information and elite status that they could and would do exactly that if only the great unwashed masses of the body politic would allow them the power. China was reporting extraordinary growth in its gross national product, which according to some accountings had already overtaken America’s as the world’s largest, and the country was blissfully unbothered by anything resembling the fiscally sober and free-market-loving elements of America’s Republican Party, so a cause-and-effect relationship of course seemed obvious to a certain sort of so-called liberal, and the example of authoritarian rule that momentarily seemed to be working was simply too much for the more authoritarian-inclined yet so-called liberals to resist.

Now that it has become so quantifiably apparent on the stock market boards that the people running the Chinese economy can’t and haven’t solved all its very serious problems, the argument for letting a few reputedly smart people run a country is harder to sustain. The Chinese invested borrowed billions in a variety of bridges and infrastructure projects and entire new gigantic cities, just as the reputedly smart people on the American left would do, but the bridges mostly led to nowhere and the infrastructure projects were largely pointless and the cities remain uninhabited, and there’s nothing resembling the fiscally sober and free market-loving portion of the Republican Party around to be blamed for the obvious mess.
The worst possible outcome for America’s economy might yet be blamed on that same portion of the Republican Party, and some self-described or barely-disguised socialist might persuasively make the argument for letting a few reputedly smart people run the whole economy and the rest of your life, but at least the fiscally sober and free market-loving portion of the Republican Party will be able to make a plausible argument. We’re as alarmed as anyone else about this stock market dive, and well understand where it might lead, but we’re clinging to a faint hope that at least it won’t lead to a Chinese-style authoritarianism.

— Bud Norman

Oy Vey, That Stock Market

These days our interest in the stock markets is mostly academic, but the past several days have been quite interesting nonetheless. Pretty much everywhere the stock markets are panicking, and suddenly the most alarmed pundits are surpassing even our usual gloom and doom.
The Dow Jones Industrial Average took a catastrophic 1008-point plunge Monday before a roller coaster rally reduced that to a still dire drop of more than 588 points, which is about 3.7 percent of the market’s total value lost in a single day, which is enough for some pundits with a economic stake in their reputations to advise people to invest heavily in bottled water and canned foods. Our own reputation for economic prognostications is of negligible value, as we won’t even pretend to know what the hell is going on out there, but for what it’s worth we’ll go on record to say that it apocalyptic predictions sound plausible enough to us.
Maybe it’s just that early 1008-point plunge that’s got us fretful. We’re old enough enough to recall a time with the DJIA measured in four digits, and when a three-digit drop dominated the next day’s headlines, so a three-digit drop has a scary sound to our ears even in this age of a Dow so many thousands ahead of even the Reagan days. That 588-point closing plunge even seems frightening, especially after the previous week of steep decline, and there’s little elsewhere in the news to provide reassurance that this is just one of those occasional dips in the inevitable road to prosperity. The popular explanation is that the Chinese economy, which might or might not be the world’s first largest economy depending on which method you believe, is suddenly going from vastly overstated good fortune to probably overstated decline and that the rest of the world is running the numbers and realizing that as a result they’ll fall far short of the promises that have been made to their restive peoples. The rest of the world is mostly the United States, which might or might not be the world’s first largest economy, depending on which method you believe, and the European Union, which is by all accounts a solid third in the pecking order, even with Greece’s ongoing catastrophe and all the the other brewing problems with that misguided project to meld fissiparous Europe into one state and economy, and the Latin American economies that have lately seen a plunge in the value of their currency, and the African states that are so dysfunctional they barely rate a mention in the stock market news, and the Asian countries that are overwhelmed by the Chinese, so the global situation doesn’t seem at all encouraging.
We have some faith in our fellow citizens that they’ll still be able to provide the products and services they’ve made their lives’ work, so that the bottled water and canned goods aren’t the next shrewd investment, but we have little faith in any of the governments and we’re still pretty gloomy and doomy. The communist Chinese method of mandating by law that by power of the gun the economy will continue to climb no matter how many ghost cities they build is proving powerless against the almighty market forces, the United States’ and European Union’s method of simply printing enough money to pay of all the promises is proving just as ineffectual, and the rest of the world is of course entirely hapless. The inevitable fact that ghost cities and printed money and false promises of government-engineered property aren’t enough to sustain a global economy seem to have reached their conclusion.
Those Dow Jones Industrial Averages were always overstated, to our admittedly unreliable thinking, by all all the quantitative easing of free money that had nowhere to go in a zero body yield world except the stock markets. All of the eye-popping numbers the markets produced seemed wildly incongruent with an economy that had a record lows in labor participation and declining wages and the scant job claims outstripped by immigration, and the current panic seems more in line with the reality of the actual situation. Although we don’t recommend investing in bottled water and canned goods we don’t expect any good news about the economy soon.

For those who insist on a silver lining we we will note that the economy should soon its rightful place among the pressing issues of the day, and that the public will not be inclined to buy any arguments for the status quo.

— Bud Norman

Running With the Bulls

As much as we hate to be the gloomy sort who find dark clouds within every silver lining, we just can’t shake an unsettling feeling that there’s something fishy about this bullish stock market.
By the time you read this the Dow Jones Industrial Average might well have surpassed its all-time high, in which case the usual media cheerleaders will be singing “Happy Days Are Here Again” and claiming vindication for Obamanomics. Such gloating is understandable, as the stock indices provide a pleasant diversion from more depressing numbers, but those more depressing numbers make it all seem rather unaccountable.
The reigning record of 14,164 was set back in Oct. 9, 2007, in the dark days of the Bush administration when the economy was suffering through 4.9 percent growth in gross domestic product and a 4.7 percent unemployment rate, with personal income rising four-tenths of a percentage that quarter. In the Golden Age of Obama the Dow is back within shouting distance of that closing figure, but unemployment is at 7.9 percent, the latest quarterly GDP growth has recently been revised from a contraction of 0.1 percent to a slightly more robust gain of 0.1 percent, and personal incomes are dropping by 3.6 percent. Throw in another $7 trillion of national debt, a few credit downgrades for the federal government, higher taxes, a weakened global economy, and assorted international crises, and the current bull run becomes very hard to explain.
Bullish types will always find reasons to buy, and even such bearish types as ourselves must concede they can usually find them, but it’s currently hard to see any compelling reasons for a new record. The CNBC news service quotes a giddy analyst who is heartened by signs of an improving housing market and “good reports” from Priceline and The Dollar Tree, but the housing prices aren’t rising at the overly rapid rate they were back in ’07 — a soon-to-burst bubble caused by the government-created subprime mortgage boondoggle — and Priceline and The Dollar Tree are hardly drivers of the American economy. We’re not even sure what either company does, although we believe that Priceline is the company that William Shatner pitches and has something to do with the internet, and judging by the “Dollar” in its name we presume the Dollar Tree caters to budget-conscious shoppers trying to get by on incomes recently diminished by 3.6 percent.
The same analyst assures CNBC’s readers that the current state of the stock market is due to “more than soothing words from Fed Chairman Ben Bernanke,” but we suspect that the Bearded One is mostly responsible. Bernanke has quantitatively eased a few gazillion dollars into the money supply during his time at the Fed, and with bonds yielding laughably low rates and new ventures smothered by reams of new regulations those dollars have nowhere to go but the stock market. So long as Bernanke keeps the printing presses running, the stock market should do fine.
Until it stops, as all things do. When it does, we hope to be safely invested in something very tangible. The bigger the bubble, the bigger the burst.

– Bud Norman