Day: July 1, 2018

The Trade War Gamble: It’s Not Trump’s To Win But China’s To Lose

As we sit here today the “markets” appear to be shrugging off any remaining discontent from the February scare earlier this year. Trade war? Who cares buy, buy, buy! E.U. concerns such as Germany, Italy, Greece, et cetera? Brexit? Who-gives-a-sh*t, buy, buy, buy! How about Argentina or Brazil? What about Mexico? Who cares, that’s all so Cinco-di-mayo ago. What about Canada? What about it? Unless their threatening to stop shipping beer, buy, buy, buy!

This has been the overarching consensus expressed via the “markets” as of this past Friday. Or, said differently, in those immortal words of Alfred E. Neuman, “What, me worry?”

I would contest: Yes, yes you should.

Regardless of the political view one may have about the current U.S. president, one thing can not be understated: The more one tries to frame the unfolding “trade war” kerfuffle via a political view exclusively – the more business illiterate one shows themselves to be.

This is why when you listen to most Ivy Leagued, Ph.D’d, think-tank, economists or academics paraded across the mainstream business/financial media to supposedly tell you something worth listening to for insight – you would be better off, just turning it off, because it’s all a bunch on nonsensical, “intellectual”, gibberish. i.e., When a so-called “business show” host tells their viewers the reason why one needs to listen carefully to their guest for relative or pragmatic business insights is, because they are a “liberal?” Sorry, you’ve just lost any remaining business credibility you once had.

Irrespective if one is a liberal, conservative, independent, or a penguin. It doesn’t matter when it comes to business. i.e., Business – is – business. Period.

The business of politics is a completely different matter, and understanding the difference, along with being able to understand and articulate points where they meet, and how they can be used for advantage or other scenarios, is what astute business purveyors can do instinctively.

Academics, evidenced by reason of their title alone – can not, for they know nothing other than academia. Where getting to the top is how much “paper one can push” or how well one can bloviate what they know, because of what they read, not what they’ve done.

Think I’m off track? Fair point, so I’ll use just one example, for it doesn’t just speak volumes – it’s an entire library.

Ask the once “next in rotation academic of insight,” business school professor, Nobel prize-winning, Joseph Stiglitz how well Venezuela is doing?

Hint: There’s a reason many argued against the views and rantings of Mr. Stiglitz and his Ivy Leagued ilk. e.g., In his book “Making Globalization Work” (2006 W.W. Norton & Co.), Stiglitz argued that left governments such as those in Venezuela, “have frequently been castigated and called ‘populist’ because they promote the distribution of benefits of education and health to the poor.” i.e., Socialism is the answer to capitalism, got it. So, how’s that whole Venezuela thing working out?

Well, just don’t expect to see that question asked via the mainstream business/financial media – for his insights on such matters seem to suddenly be out-of-sight. Funny how that happens, no? Just scheduling conflicts, I’m sure.

The reason for the above is this: If you look at the unfolding trade rhetoric solely through the political prism – it appears nebulous, nonsensical, or both.  However: If you view it through a business centric viewpoint – many clouded issues, along with seemingly illogical rhetoric, begin to become clearer, both strategically, as well as tactically.

To say differently: the more you understand business – the better you can both understand, as well as appreciate, the current situation and tactics being employed from all sides other than, if you try to interpret solely via the political, which is all most academics can do. Even if it’s all happening by happenstance, doesn’t matter. The implications remain the same.

Now, to be clear, I’m not arguing for, or against, the current administration based on their political party or view. What I am going to argue for is their current dealings when it comes to business, and in-particular the way it is dealing with prior trade agreements. For it is here, when one views the current stance and responses via the business prism – things make a whole lot more sense than what most of the so-called “smart crowd” interprets to be happening.

I wrote about just this point back in January, 2017 when the first iterations that things were not going to go along as “business as usual.” And since then my point has been made clearer, and clearer every-time the academics try to interpret, then explain their reasonings.

I’ve seen and heard more convoluted, nonsensical interpretations to the degree, I believe, it would make a Rorschach test blush. And when it comes to “Trade wars?” It’s even more of a farce, where I’ve stated so, in prior articles.

Whether one thinks the current situation is untenable, or not, is immaterial. Why? Because it’s the entirety of all the prior, globalized “free trade” deals that are the untenable part.

What the current administration has done is taken a play right out of not “The Art of The Deal” (November, 1987 Random House) but rather, the movie “Margin Call” (2011, Lionsgate) when John Tuld (Jeremy Irons) states, (paraphrasing) “It’s not called panicking, if your first.”

Using the above for context: The U.S. is the one that is now – first out the door – of these untenable trade agreements constructed out of whole cloth business assumptions permeated and perpetuated throughout academia and government house organs everywhere – and  – it is China that is beginning to panic, along with most, if not all, of the others.

My opinion of course, but it’s based far more on business acumen than any academic interpretation can muster.

China is now visibly struggling to keep all the “spinning plates” of financial engineering aloft, but they are beginning to wobble miserably.

The Shanghai Composite Index has now moved into technical Bear Market status (e.g., down 20%.) The Yuan, whether by stealth devalue or outright politburo control loss is within spitting distance of panic levels. (e.g., 6.70 USD/CNY cross-rate) Above 6.70 and the race for all out currency panic begins in earnest (e.g., 7.00)

In China their leader Xi Jinping was recently voted in as “leader for life.”  I have written about this prior where I made the argument that this will allow him to control the populace with an iron fist should the economy begin to falter, then runaway downhill. I also argued it was the reasoning why he pushed for it. I believe a difinitive answer to that assessment will be forthcoming in the very near future.

Yes, many will state that the current Trump administration will be tarnished should the economy begin to falter. That may be true, but it may also be false, and here’s why…

Should China suddenly falter with either a massive currency devaluation, whether directed via the politburo, or just from market forces, sending contagion knock-on effects reverberating globally will be just the catalyst (as well as straw-man) the administration can (and more likely, will) use to state something akin to, “See, it was China all along benefiting on our lousy trade policies. The more we asserted fairness, the quicker they fell apart. See, they can’t compete with us unless it’s based on tying our hands, so now we need to begin rebuilding right here, first!”

Doesn’t mean there won’t be pain for everyone involved, but the difference is “Rebuilding Main Street U.S.A., one job at a time” and the pain which may follow as to do just that is a lot more acceptable to the citizenry than – keeping bad trade deals alive so others like China can thrive.

If you want to know why there’s no “Main Street” feeling in most cities, look no further than the globalist “free trade deals” of yesteryear.

That wasn’t business – that was economic suicide. And anyone with half-a-brain (or no college degree) can see it.

© 2018 Mark St.Cyr