Bubbles Are Brutal
Nothing makes sense in their late stages
Asset bubbles are brutal.
The most difficult time to remain centered and focused is during their last stages as everyone around you is going nuts. Logic has been tossed out the window, sentiment is manic, and every narrative – the stories we hear and use to make sense of our world – is thoroughly ungrounded.
After a decade of price deformation — such as UBER being valued by the ““markets”” at $45 to $50 billion despite having no viable path for ever making a profit — it seems that practically everyone has lost the ability to perform even basic math or reality checks.
For example, this week — for what must have been the 42nd time — the Trump administration has proclaimed a massive victory in the China Trade Deal.
The narrative being sold to us is that along with the immediate roll-back of tariffs (which is Trump caving, not ‘winning’), China will buy $50 billion of US agricultural products in 2020.
Huge excitement in the global equity markets has greeted this news. Stocks exploded higher and bonds have been sold off. Unleash the hounds of economic growth!!
All this based on the premise that China has (verbally) agreed to buy $50 billion of US agriculture products in 2020.
Now, about that…
What does $50 billion a year in Ag trade look like? Is it even possible?
The all-time record of China buying Ag products happens to have been in 2012 when:
- Ag products cost a lot more on a unit basis (this was the food inflation which you may remember kicked off the Arab spring riots in 2011?) and
- China hadn’t yet formed solid trade relations with other Ag producers such as Brazil and Russia.
What was that all-time record? It was just $26 billion.
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