It has in the past been “the financial crisis”, “the Euro crisis”, “Greek debt”, “Italian banks”, “the fiscal cliff”, “Brexit” and so on. Every one of those events an extension of Keynesianism and its debt-leveraged monetary magic tricks. But now the buzz phrase is “trade war”, a different kind of animal.
The brewing trade war with China is different. With every damn one of the events noted above we here in the anti-hype environs of nftrh.com (and before it, biiwii.com) have tried to maintain perspective about why it was occurring (Thing 1, which we had anticipated in essence if not in the exact way it played out) or why they would not prove long-term bearish or bring on the end of the world (Things 2-6). [Editor’s Note: at first glance, I thought this was a Biblical citation, until I realized there was not a book of Things, at least not in the King James Version to which I am accustomed. – Tim]
Indeed, we often note that inflammatory market events prove most often to be sentiment resets and buying opportunities as the herd pukes up its asset holdings. Keynesianism after all, has an elasticity to it despite its obvious and one day terminal faults. The elastic keeps stretching to this day.
But the Trump-China trade war issue is a fundamental event taking place outside of Keynsianism and the all-controlling grip of US and global Central Banks. We in the US are now in the realm of fiscal policy produced by politicians with agendas, which replaces the Fed’s monetary policy produced by egghead economists with agendas.
The US Central Bank is (very) slowly but surely removing the beneficial tools that jimmied the system long after they were used to bail out the financial crisis damage that was instigated by previous Central Bank excesses (hello Greenspan). And now into the breach steps Trump, the man taking the US back to the good old days of my youth when America was still an industrial giant with thriving steel and coal industries and men cranking handles on manually operated machines.
As the world developed, trade became a big issue. My father was a manufacturing guy through and through. He worked as hard as was needed to get us out of Southie (now, probably a destination rather than a place to escape) and into the suburbs. The quote I heard probably way too much growing up? “Ya know Gah, the Japanese are eating our lunch.”
And so now it is China. Donald J. Trump, the son of a real estate man evidently successful enough to seed the future real estate magnate and TV show star a cool $million to get started, sees things in caricatures of the all too real gripes about the past. In his world view valiant men toil underground in small caves carving fuel out of the ground, men still crank handles on factory floors and men still work in foundries that resemble something between purgatory and hell fashioning steel and aluminum materials in a great American industry.
It’s not to say that men are not still doing these things. But it is to say that for better or worse the world has moved on. It used to greatly concern me, myself a former manufacturing person, to hear about Japanese progress and the coming of China as a cheap labor behemoth. But over the years I came to realize that the Japanese were “eating our lunch” because of a national work ethic combined with progressive practices. As noted in previous articles like this one from 2004 (Deflation: A Manufacturer’s View) it was automate or die for us and that is exactly what we did. We also lived… just fine thank you.
It’s a thing called progress and that is the way the world has shifted. To this day I keep an eye on a couple of former suppliers of mine, Fanuc (FANUY) and Faro Technologies (FARO), each of which serve manufacturing automation and productivity. Wall Street’s Armani suits have made a big hype deal about these ‘robotics’ (actually, automation is a better word for them) companies just as they did with the 3D Printer companies before them. Most suits have never gotten their shoes dirty on a shop floor and I would think that includes Donald J. Trump as well, outside of political opportunities to see and be seen among the great unwashed (I write that with the pride of someone who’s had his share of machine coolant showers).
But Trump may not only be taking us too far back in modern history; he may be taking us too far back to a completely different world, as in 1930 and Smoot-Hawley. Look at the old fashioned men in the picture below. Their action may or may not have been misguided for 1930 (what followed argued that it was) but that was 19 friggin’ 30 folks! Donald J. Trump, businessman extraordinaire who probably has read about coal miners and factory workers at the club while sipping martinis at happy hour, is calling upon his vast experience with manufacturing (I am sure the papers he read were very detailed) to bring us backwards.
Of course, Trump is all about the art of the deal… and all about taking us backwards. He’s fighting not last year’s battle, not last decade’s battle but last century’s battle (circa 1930-1970).
All of this said, what is happening now is a lot of hype with an economic illiterate or at best an economic retardare in charge. But fear not, he’s got a highly skilled economic adviser now: Larry!
Look, if the president of the United States is going to make a clown show out of very serious issues, I am going to make a clown show of a serious article refuting his stance.
All of the above said, I know full well that the art of Trump’s deal is to surge into the breach, create a shit storm and from there, negotiate (especially where IP is concerned). At least that is what I hope is the art of his deal. As for the US saber rattling and China’s response, I am not overly concerned as cooler heads will probably prevail; and maybe it will prove just another buying opportunity in equities. Things have not yet gone too far off the rails and if you’d like a handy one-stop shop for all things “Trade War”, here it is. Just click the graphic and get all the Tariff news and analysis you want at Bloomy…
In the graphic above, the “Winners Stand Out” headline goes on talk about how well gold and ‘safe haven’ currencies are doing. Talk about the most old fashioned of assets! Gold is eternal in its characteristic of not being a price play, but an anchor amid asset markets in motion.
Well, you don’t get much more in-motion than today. Gold, silver and the miners are going to get where they are going sooner or later and if we are really being dialed back to 1970s strategies there would be a rhyme there for the precious metals. That decade ended in bullish fashion amid globally rising inflation fears.
Currently, we have anticipated a tamping down of inflation expectations but the bigger play moving forward may well be inflation. Yes, I am the guy warning against being an inflationist gold bug but that warning only applies if the economy is doing well and stock markets and other cyclical assets are out performing gold. So we can watch this potentially real economic event play out and see what kind of effects it may have on the economic cycle moving forward.
Indicators at the ready!