This Deal and That Peak

By David Stockman  |  April 4, 2019

What makes us omniscient? Have we a record of omniscience?

– Robert McNamara, in “The Fog of War: Eleven Lessons from the Life of Robert S. McNamara,” a 2003 documentary film directed by Errol Morris

Traders, speculators, robo-machines, and algorithms are all geared to an “all clear” for another run at “Peak Trump.”

As a technical matter, that’s 2,940.91 on the S&P 500 Index, which was reached on September 21, 2018. We’ve been as low as 2,400.56 since then, at the open on Christmas Eve. But, after that 18% dive, the Federal Reserve totally capitulated to the Tweeter-in-Chief, Bubblevision, and even old-school “pros” known for their prudence.

More ominously, rather than signaling “all clear,” this pending agreement with China is more likely just another misstep in a prolonged lurch toward the end of the “Everything Bubble.” Indeed, I’ve written a new book about it…

Nevertheless, in 2019, our monetary central planners have been in a giving mood. And, now, the S&P 500 Index is less than 2% from making new all-time high. The next catalyst in rotation is supposed to be a deal with China to end the Donald’s Trade War.

Fresh reports this morning touted the “end stage” of negotiations and said “deal hopes rise.”

Well, we’ve been around this block many times the last few months.

Oh, something will be agreed relatively soon that’ll support a big Trump-Xi signing ceremony. But it won’t mean a thing for Main Street.

That’s because the Donald’s negotiating team is actually aiming at MAGA’s base, not the Chinese. They’ve bamboozled the “low interest man” in the White House.

Yes, we’ve imposed $30 billion of tariffs on $250 billion of Chinese imports. And that sounds like a solid tactic to pressure the Red Ponzi. But the president’s men only want Xi to extend the welcome mat for U.S. corporate investment in the Mainland and under more amenable terms.

Bringing production and jobs back to Flyover America – the Donald’s decades-old obsession – is barely an afterthought.

The Donald launched his Trade War in mid-2018 based on the “findings” of an investigation supported by Section 301 of the Trade Act of 1974. Those 215 pages detailed China’s alleged “unfair acts, policies and practices.”

And they were all about the bad things that happen to American companies when they attempt to operate in China and to willing U.S. owners who try sell some or all of their companies to Chinese acquirers.

There’s nothing to do with bilateral merchandise trade between the U.S. and China. Nothing in these “findings” explains the freakish fact that China exported $563 billion of goods to the U.S. in 2018 but bought only $120 billion of goods from U.S.-based suppliers.

That $443 billion deficit is, supposedly, what has the Donald’s orange mane standing on end. And, to a substantial degree, it does measure the offshoring of U.S. production and jobs that’s left Main Street high and dry.

But the Section 301 report doesn’t even bother to document how China discriminates against U.S. imports or unfairly subsidizes its exports.

First of all, neither of these activities – even if it’s the Chicoms doing them – would be grounds for a trade war had the U.S. Trade Representative reported evidence of them. Imperial Washington simply shouldn’t be meddling in the bilateral flow of goods between the two countries.

Alas, based on those findings that were made, the Donald declared his Trade War. And his retaliatory actions and preemptive moves on the merchandise trade front have made the problem worse. U.S. exports to China, for example, dropped from just under $130 billion in 2017 to $120.3 billion in 2018.

That’s a decline of 7.4%. And it was less than six months’ retaliation by China, which imposed tariffs on $110 billion of U.S. goods after mid-2018. The actual annualized run-rate of export loss, in fact, has been estimated at $40 billion. That’s nearly one-third the 2017 baseline level.

The very bilateral imbalance he wishes to reduce is growing. And he’s clobbered the very constituencies he claims to champion, hand-to-mouth Walmart customers, farmers, and workers in U.S. export industries.

It’s an open question whether the Donald will recognize this age-old mercantilist error. That’s the proposition that if foreigners fill their harbors with rocks to discourage imports we should imitate their stupidity by doing the same.

I tend to doubt it, though. It’s just “Peak Trump.”

Grab Some Cover

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR