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China Responds To Trump’s “Barbaric” Tariffs: Vows To Fight “Until The End” And Have “The Last Laugh”

China Responds To Trump’s “Barbaric” Tariffs: Vows To Fight “Until The End” And Have “The Last Laugh”

After Friday’s blitz of reciprocal trade war escalations, which saw a furious Trump slam the two “enemies of the state”, Fed Chair Powell and China president Xi, following China’s widely expected tariff hike retaliation and Powell’s uneventful Jackson Hole speech, and further raise tariffs on virtually all Chinese imports after stocks suffered another major selloff, we said that the next steps were clear.


And now China has to retaliate and so on


Sure enough, in response China said it would continue fighting the trade war with the US “until the end” as tit-for-tat escalation is now virtually assured with no end in sight.

On Saturday, China’s commerce ministry issued a statement calling on Washington not to “misjudge the situation and underestimate the determination of Chinese people” after US President Donald Trump announced new tariffs on Chinese imports.

“The US should immediately stop its wrong action, or it will have to bear all consequences,” the statement said.

At the same time, a sharply worded commentary in the official party mouthpiece, People’s Daily, said China had the strength to continue the dispute and accused Washington of sacrificing the interests of its own people. Published under the pseudonym “Wuyuehe”, the piece described the latest tariff measures by the US as “barbaric”. The op-ed said China’s own tariffs on $75 billion worth of American products, announced late on Friday, were a response to America’s unilateral escalation of the trade conflict, and vowed that China was determined to fight back “until the end”.

“China’s will to defend the core interests of the country and the fundamental interests of the people is indestructible, and will not fear any challenge,” the author wrote, promising that “history will prove that the side on the path of fairness and justice will have the last laugh.”

…click on the above link to read the rest of the article…

CONfidence

CONfidence

Markets are subject to a giant con game. The game of CONfidence. Confidence must be maintained under all circumstances or we’re heading into a global recession first and then a US recession to follow.

Consider the macro context here: Nine major economiesare either in recession or on the verge of it. This includes Germany, UK, Italy, Mexico, Brazil, Argentina, Singapore, South Korea, Russia. Everything else is slowing down hard. Yields are plummeting for a reason and once again the world is looking to central banks to bail everyone out and for stimulus programs to be launched to rescue a global economy that hasn’t been able to do without in 10 years. US consumers are holding the US economy up is the consensus as they keep spending for now, but already we saw a dip in confidence. Why? Trade tensions, political tensions, and yes, concerns that the longest business cycle may come to an end. Add scary stock market headlines and before you know it the consumer is holding back.

And hence confidence must be maintained under all circumstances. This has been the game for 10 years and hence any market drops that would add pressure to confidence must be averted. You really think it’s an accident we see intervention always at the point of serious trouble?

Retail sales dropped hard in December as markets plummeted. It’s no coincidence. Hence any prolonged malaise must averted.

As Mohamed El-Erian pointed out so clearly this week:

“We may end up in a situation where people read these alarmist headlines, they get concerned, they stop spending. As they stop spending, companies stop investing. And then we get a major slowdown:” ⁦

Alarmist headlines? How about headlines that point out reality? But the larger point is clear: Lose the consumer and a recession is unfolding perhaps more quickly than anyone can imagine. After all nobody on the planet called for a 1.5% US 10 year yield in 2019 or a German 10 year bund at -0.72%.

 …click on the above link to read the rest of the article…

Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket

Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket

For those who have grown bored with the ongoing US-China trade war whose escalation was obvious to all but the dumbest BTFD algos, the biggest news of the past week was that yet another Chinese bank was bailed out by the Chinese government – the third in the past three months – and a substantial one at that: with over 1.4 trillion yuan in assets ($200BN), Hang Feng Bank’s nationalization was certainly large enough to make a dent on the Chinese financial system and on the Chinese Sovereign Wealth Fund, which drew the short straw and was told to bailout the troubled Chinese bank (more here).

Hang Feng’s bailout followed those of Baoshang and Bank of Jinzhou, which means that 3 of the top 4 most troubled banks have now been either nationalized by an SOE or seized by the government, which is effectively the same thing.

Of course, to regular readers this development was hardly surprising, especially after our post in mid-July when we saw the $40 trillion Chinese banking system approach its closest encounter with the proverbial “Lehman moment” yet, when inexplicably the four-day repo rate on China’s government bonds (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) on the Shanghai exchange briefly spiked to 1,000% in afternoon trading.

While some attributed the surge to a fat finger, far more ominous signs were already present, and in the aftermath of the Baoshang failure, which has sent Chinese banking stocks tumbling, one-day and seven-day weighted average borrowing rates had remained low thanks to huge central bank cash injections – such as the 250BN yuan we described back in May  – longer tenors such as the 1 month repo have marched sharply higher.

 …click on the above link to read the rest of the article…

U.S. Currency Wars With China—Past And Present

In a purely political move, the Trump administration (read: the U.S. Treasury) has branded China as a currency manipulator. This is an act of war. After President Trump announced that even more tariffs would be imposed on China, the markets took the value of the Chinese yuan down a notch or two. So, who was “manipulating” the yuan, Beijing or Washington? Well, it looks like Washington is engaging in yet another Asian currency war.

As it turns out, the United States has a long history of waging currency wars in Asia. We all know the sad case of Japan. The U.S. claimed that unfair Japanese trading practices were ballooning its bilateral trade deficit with Japan. To “correct” the so-called problem, the U.S. demanded that Japan adopt an ever-appreciating yen policy. The Japanese complied and the yen appreciated against the greenback from 360 in 1971 to 80 in 1995 (and 106, today). But, this didn’t close the U.S. trade deficit with Japan. Indeed, Japan’s contribution to the overall U.S. trade deficit reached almost 60% in 1991. And, if that wasn’t enough, the yen’s appreciation pushed Japan’s economy into a deflationary quagmire.

Today, the U.S. is playing the same baseless blame game with China. And why not? After all, China’s contribution to the overall U.S. trade deficit has surged to 47%.

America’s recent declaration of economic war against China isn’t the first time the U.S. has used currency as a weapon to destabilize the Middle Kingdom. In the early 1930s, China was still on the silver standard, and the United States was not. Accordingly, the Chinese yuan-U.S. dollar exchange rate was determined by the U.S. dollar price of silver.

During his first term, President Franklin D. Roosevelt delivered on his Chinese currency stabilization “plan.” It was wrapped in the guise of doing something to help U.S. silver producers and, of course, the Chinese.

 …click on the above link to read the rest of the article…

Here Are The Signs The US Gov’t Is Preparing For Farmageddon

Here Are The Signs The US Gov’t Is Preparing For Farmageddon

President Trump on Tuesday morning hinted at what appears to be yet another farm bailout (the third one must be the charm), as farm bankruptcies soar and agricultural debt loads become unbearable.

As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do – And I’ll do it again next year if necessary!

A farm crisis on par to what was observed in the early 1980s could be coming, especially since the US Senate passed a bill late last week that makes it more accessible for farmers with larger debt loads to file for bankruptcy protection, reported Reuters.

The bipartisan bill, designated as the Family Farmer Relief Act of 2019, increases the total debt load of how much a farmer can have to meet the qualifications to file Chapter 12 bankruptcy, to $10 million from the prior $4 million ceiling.

According to the US Department of Agriculture (USDA) data, operating a farm today involves much higher costs than it did three decades ago. Experts say without a complete reform of the law, mom-and-pop farmers would be subjected to Chapter 11 bankruptcy protection, which is expensive and chaotic.

The bill was passed last Thursday and earlier by the US House of Representatives, is headed for President Trump’s desk to sign. Judging by the president’s comments on Tuesday morning about the potential of a third farm bailout, it seems that this bill will most likely get passed.

Republicans and the Trump administration are preparing for Farmageddon with new interventionist measures that will hopefully cushion farmers from retaliatory tariffs by China.

The new bill once signed, will support President Trump’s farm base that has been walloped by retaliatory tariffs by China on agriculture products.

 …click on the above link to read the rest of the article…

Pakistan Suspends Bilateral Trade With India, Expels Envoy

Pakistan Suspends Bilateral Trade With India, Expels Envoy

The Kashmir crisis triggered by India’s revoking of Article 370 from its constitution has exploded into a fast escalating renewed crisis between nuclear armed arch-rivals India and Pakistan.

Merely within the last 24-hours Pakistan has recalled its ambassador while expelling its Indian envoy, and more importantly has taken the drastic step of suspending bilateral trade with India

“We will call back our ambassador from Delhi and send back their envoy,” foreign minister Shah Mehmood Qureshi announced in televised comments, according to the AFP, while a separate government statement declared trade suspended and a downgrading of diplomatic ties. 

File image of Pakistani National Security Council meeting

The committee has decided on “downgrading of diplomatic relations with India” and “suspenstion of bilateral trade with India,” according to the statement

PM Khan further directed the military to “continue vigilance” after previously saying Pakistan would take “all possible options” in support of Kashmir’s Muslim-majority population – this after regional media has reported “tens of thousands” of Indian troops have surged into Jammu and Kashmir (J&K), while a phone and internet blackout is in place. 

In a worrisome sign that the two historic rivals and neighbors could be again moving to open war, Khan is reported to have said“We have to choose between dishonor and war.”

Pakistan’s foreign minister informed the United Nations early this week it is prepared to act in response to the “critical situation”- which Khan reiterated to the high level defense committee meeting Wednesday.

The now voided Article 370 is legally and historically what assured a high degree autonomy for the Indian administered Muslim-majority state, enshrined in the constitution, which inhabitants there see as justifying remaining part of India. The Hindu nationalist Bharatiya Janata leadership in New Delhi, led by Prime Minister Narendra Modi, revoked J&K’s status quo ability and rights to maintain their own local governance on Monday.

 …click on the above link to read the rest of the article…

4 Reasons To Expect Even More US-China Trade (And Currency) War Escalation

4 Reasons To Expect Even More US-China Trade (And Currency) War Escalation

As we noted earlier when summarizing some of the more notable Wall Street reactions to China’s jarring trade war escalation, we highlighted the take of Morgan Stanley’s chief US public policy strategist, Michael Zezas, who said that he saw incentives for the U.S. to escalate quickly. Specifically, referring to the now viral chart of the circular dynamic of Trump-Powell interaction…

… Zezas said that if the administration understands the Fed’s trade policy reaction function – which it clearly does after it unleashed a new round of tariffs less than 24 hours after the Fed’s rate cut which has the market now pricing 33% odds of 2 rate cuts in September (see more here) – then it may also perceive that a more rapid escalation could deliver one or more of three beneficial points ahead of the 2020 election:

  1. A quicker, potentially more aggressive Fed stimulus response that could help the economy heading into the election;
  2. More time to re-frame the potential economic downside; and
  3. A major concession by China (not our base case, but it is, of course, a possibility).”

“The dynamics of U.S.-China negotiation and macro conditions mean the next round of tariffs will likely be enacted, and investors are likely to behave as if further escalation will follow in 2019 until markets price in impacts,” Zezas wrote. “This supports our core view of weaker growth and skews the Fed dovish.”

Zezas also highlighted several key global trade risks amid the rising geopolitical uncertainty, which he expects to keep rising:

  • WTO Courts at risk
  • US/EU confrontation set to intensify
    • Nov 15th auto deadline
    • OECD negotiations
  • US/China resume escalation

 …click on the above link to read the rest of the article…

DHL Sounds Alarm On Collapsing World Trade: “Significant Downturn” Underway

DHL Sounds Alarm On Collapsing World Trade: “Significant Downturn” Underway 

A new quarterly report from logistics company DHL, measured global air and sea cargo trade volumes between March and June, found trade data continues to deteriorate in the US and China as there is still no resolution to end the trade war, reported South China Morning Post(SCMP).

Chinese imports were “losing significant momentum,” the report stated, indicating the epicenter of the slowdown was situated in basic raw materials, capital equipment and machinery, and consumer fashion goods. The loss of momentum in DHL trade data has also been confirmed in official Chinese import data releases.

The report indicated that the US trade outlook is more dangerous than China: DHL expected a “significant downturn, driven by heavy losses in exports outlook.” DHL said both air and sea freight have plunged into negative territory in 2Q19, with extreme weakness in basic raw materials, chemicals, and technology.

“The declining outlook for US exports indicates that, so far, the US is missing its goal of strengthening its export economy with a harsher trade course against China,” DHL said.

DHL’s Global Trade Barometer measured air and sea container freight for seven countries, which together accounted for more than 75% of world trade

The report focused on early-cycle commodities to detect turning points in global trade flows — goods such as automobile bumpers, touch screens for smartphones, and brand labels for clothes.

If shipments of early-cycle commodities edged down, DHL was able to forecast lower demand finished goods.

“The data is expressed as a figure, with a reading above 50 indicating a positive outlook over the three month period, and below 50 a negative. For the US, air trade fell from 53 in March to 45 in June, while sea trade fell from 57 to 43. In the case of China, air trade fell from 57 to 51 over the same period, while sea trade fell from 55 to 47,” said SCMP.

 …click on the above link to read the rest of the article…

For Those Who Don’t Understand Inflation

FOR THOSE WHO DON’T UNDERSTAND INFLATION

This article is a wake-up call for those who do not understand the true purpose of monetary inflation, and do not realise they are the suckers being robbed by monetary policy. With the world facing a deepening recession, monetary inflation will accelerate again. It is time for everyone to recognise the consequences.

Introduction

All this year I have been warning in a series of Goldmoney Insight articles that the turn of the credit cycle and the rise of American protectionism was the same combination that led to the Wall Street crash in 1929-32 and the depression that both accompanied and followed it. Those who follow statistics are now seeing the depressing evidence that history is rhyming, though they have yet to connect the dots. Understandably, their own experience is more relevant to them than the empirical evidence in history books.

They would benefit hugely from a study of the destructive power of the Smoot-Hawley Tariff Act combining with the end of the 1920s credit expansion. The devastating synergy between the two is what crippled the American and global economy. And as we slide into a renewed economic torpor, contemporary experience tells us the Fed and all the other central banks will coordinate their efforts to restore economic growth, cutting interest rates while accelerating the expansion of money and credit. The current generation of investors argues that this policy has always worked in the past (at least in the past they have experienced) so the valuation-basis for financial assets and property should stabilise and improve.

This brief summary of current thinking in financial markets ignores the fact that a catastrophic tariff-cum-credit-cycle mixture is baking in the economic cake. Crashing government bond yields, reflecting a flight to relative safety, are only the start of it.

 …click on the above link to read the rest of the article…

In Absurd Fiasco, Entire Market Spike Was Due To A CNBC Grammatical Mistake

In Absurd Fiasco, Entire Market Spike Was Due To A CNBC Grammatical Mistake

The farce that is this “market” just took a whole new turn for the surreal.

As we reported earlier, the reason why stocks surged just after 5am EDT is because of a CNBC headline, according to which the US Treasury Secretary said that a US-China trade deal “is” – present tense – 90% complete: a clear indication that a trade deal with China is once again a possibility.

This was quickly propagated by Bloomberg…

  • U.S. TREASURY SECRETARY STEVE MNUCHIN SAYS U.S.-CHINA TRADE DEAL IS 90% COMPLETE

Investing in Emerging and Frontier Markets

… which triggered a flurry of algo buying.

Doubling down, CNBC also tweeted as much saying in a (since deleted) tweet that:

“Treasury Secretary Steven Mnuchin says a U.S.-China trade deal is “about 90% of the way there.” https://t.co/3Q0wvJKKxD pic.twitter.com/of6yH5y3rs”

The problem: CNBC made a huge grammatical mistake, because instead of saying “is”, Mnuchin was actually using the past tense, and what he really said – for those who listened to the video – is that “we were about 90% of the way’ on China trade deal.

Oops.

CNBC also promptly deleted its tweet which said the deal “is” 90% completed, and the current on CNBC headline now says “Mnuchin: ‘We were about 90% of the way’ on China trade deal and there’s a ‘path to complete this.”

The deleted tweet was also revised:

Embedded video

“We were about 90% of the way” on a China trade deal and there’s a “path to complete this,” U.S. Treasury Secretary Steven Mnuchin says. https://cnb.cx/2IL7EMc

So basically Mnuchin said absolutely nothing new, and not only that, he did not provide any optimism that a deal was coming, but as we said earlier, was merely recapping what was already known.

 …click on the above link to read the rest of the article…

Two Events That Will Determine Oil Prices

Two Events That Will Determine Oil Prices

offshore rig

Two big events over the next two weeks will determine the trajectory for oil prices in the second half of the year. One of those events will take place in Japan, the other in Austria.

U.S. President Donald Trump will meet Chinese President Xi Jingping on the sidelines of the G-20 conference next week in Osaka, Japan. Nothing less than the health of the global economy hangs in the balance.

Both leaders have powerful forces pulling them in opposite directions. On the one hand, both have a domestic political constituency invested in confrontation, or, at least, in not backing down from a trade fight. Neither wants to lose face. Trump campaigned on taking on China, and at least part of his political base may be disappointed if he comes home short of victory. In Beijing, Xi is also under tremendous pressure. The protests in Hong Kong leave him little room for error, and being seen as backing down to Trump would be highly damaging.

However, both leaders are also under pressure to end the trade war. Trump has a presidential election right around the corner, and farm country has been hit hard by sinking agricultural prices related to tariffs. China’s economy has also been hit hard by American tariffs, so Xi would likely be relieved to reach a compromise.

The stakes are high. The global economy is slowing down. Manufacturing data is weak, the auto market has slumped badly, trade volumes are sharply down globally. If the talks fail and the U.S. and China decide to escalate the pressure – Trump has threatened to hike tariffs on $300 billion of Chinese goods – a full-blown recession is possible.

 …click on the above link to read the rest of the article…

The Financial War Escalates

THE FINANCIAL WAR ESCALATES

Behind the scenes, the financial war between America and China is escalating dangerously into a war to secure global financial resources. 

At a time of growing liquidation of dollar assets by foreigners, the US Treasury’s internal analysis will highlight future government funding problems in the light of a developing US recession. This will result in an overdependency on inflationary financing, threatening to destabilise the dollar’s purchasing power. For these reasons, America needs foreign portfolios to invest in US Treasuries, at a time when China also needs them to help finance her infrastructure plans and future development. We face a battle for these funds, and the outcome will determine all our futures.

Introduction

When you see a rash, you should look beyond the skin for a cause. It has been like this with Hong Kong over the last few weeks. On the surface we see impressively organised demonstrations to stop the executive from introducing extradition laws to China. We observe that university students and others not much older are running the demonstrations with military precision. The Mainland Chinese should be impressed.

They are unlikely to see it that way. The build-up of riots against Hong Kong’s proposed extradition treaty with the Mainland started months ago, supported and driven by commentary in the Land of the Free. America is now coming out in the open as China’s adversary, no longer just a trading partner worried by the trade imbalances. And Hong Kong is the pressure point.

This happened before, in 2014. The Chinese leadership was certain the riots in Hong Kong reflected the work of American agencies. The following is an extract translated from a speech by Major-General Qiao Liang, a leading strategist for the Peoples’ Liberation Army, addressing the Chinese Communist Party’s Central Committee in 2015:

 …click on the above link to read the rest of the article…

Connecting the Dots: Insane Trade and Climate Chaos

Connecting the Dots: Insane Trade and Climate Chaos

Imagine a world where food routinely gets shipped thousands of miles away to be processed, then shipped back to be sold right where it started. Imagine cows from Mexicobeing fed corn imported from the United States, then being exported to the United States for butchering, and the resulting meat being shipped back to Mexico, one last time, to be sold. Imagine a world in which, in most years since 2005, China has somehow managed to import more goods from itself than from the USA, one of its largest trading partners.

This may sound like the premise of some darkly comic, faintly dystopian film – albeit one geared towards policy wonks. But it’s no joke – in fact, it is the daily reality of the global economy.

The above examples are all instances of ‘re-importation’ – that is, countries shipping their own goods overseas only to ship them back again at a later stage in the production chain. And these are far from the only instances of this head-scratching phenomenon. In the waters off the coast of Norway, cod arrive every year after an impressive migratory journey, having swum thousands of miles around the Arctic Circle in search of spawning grounds. Yet this migration pales in comparison to the one the fish undertake after being caught: they’re sent to China to be fileted before returning to supermarkets in Scandinavia to be sold. This globalization of the seafood supply chain extends to the US as well; more than half of the seafood caught in Alaska is processed in China, and much of it gets sent right back to American grocery store shelves.

 …click on the above link to read the rest of the article…

Draghi Punts, Trump Grunts, Gold Bunts

Draghi Punts, Trump Grunts, Gold Bunts

ecb-draghi-failure

For months now the markets have been in denial that ECB President Mario Draghi has any answers to the Euro-zone’s problems. Today’s statement confirms what anyone with eyes to see has been saying.

There is no Plan B.

Draghi started the year saying he would end his various QE programs and by June he’s not only put them back on the table (New TLTRO in September) but has now opened up the possibility of taking rates lower.

Draghi told an ECB conference in Sintra, Portugal, that “further cuts in policy rates… remain part of our tools.” He added that there was “considerable headroom” to re-start bond purchases, which inject newly created money into the financial system in the hope of boosting lending and economic activity. 

Draghi has been exposed as swimming naked, as Warren Buffet would put it.

The fun part is that Draghi used the cover of Trump’s trade war with everyone to justify a policy that was inevitable anyway.

In response, President Trump piled on accusing Draghi of being a currency manipulator. And then announced his upcoming meeting with Chinese Premier Xi Jinping to hammer out a trade deal.

But, as I’ve pointed out in the past, Trump doesn’t have a serious offer on the table for China. 

Trump backed himself into a corner with China, essentially demanding it give the U.S. ultimate say over its fiscal, monetary and trade policy.

The Chinese aren’t going to agree to that any more than the Palestinians are going to agree to a Palestinian State in name only, administered like a Native American reservation by Israel.

Lebanon is not going to accede to Pompeo’s demands to remove Hezbollah from its government. North Korea isn’t going to give up its nukes so the U.S. will allow it to trade with dollars. Negotiations with Trump are nothing of the sort.

 …click on the above link to read the rest of the article…

Escalating Trade War Signals More Pain For Oil

Escalating Trade War Signals More Pain For Oil

Offshore tanker terminal

Trump backed off his proposed trade war with Mexico in the face of intense pressure from business groups and even his own party, but his faith in tariffs remains unbowed. In fact, Trump may have internalized a lesson that presents further risks to the global economy and to oil markets.

“If we didn’t have tariffs, we wouldn’t have made a deal with Mexico,” Trump said on Monday. “We got everything we wanted.”

The proposed 5 percent tariff on Mexico was suspended because Trump said that the Mexican government agreed to a series of demands to tighten up migration through the country. However, press reports suggest that some of the provisions in the deal, such as Mexico agreeing to buy agricultural goods, are a mirage, while others, such as expanding border security, were agreed to months ago.

Leaving those pesky details aside, Trump was triumphant. Indeed, even though the White House saw pushback from business groups and the Republican-controlled U.S. Senate, in Trump’s mind the whole episode seems to have reaffirmed his strategy.

With the U.S.-China trade war unfinished, the U.S. President feels emboldened to take a hardline on Beijing.

“The China deal’s going to work out,” Trump said in an interview on CNBC. “You know why? Because of tariffs. Because right now China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”

Moreover, he says that the tariffs to date have been successful. “We’ve never gotten 10 cents from China. Now we’re getting a lot of money from China, and I think that’s one of the reasons the G.D.P. was so high in the first quarter because of the tariffs that we’re taking in from China,” he told reporters on Monday. 

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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