I wrote this article for the Opening Notes segment of this week’s Notes From the Rabbit Hole. At the end of the post is a really interesting interview with Peter Atwater sent to me by pal and subscriber Michael Pollaro that you should do yourself the favor of listening to. It’s pretty far reaching, but I think Michael sent it to me because it eloquently expands on the subjects (Trade War & the Fed) introduced below and a lot more. The stuff about Nationalism and the stock market’s vulnerabilities are must listen.
There is nothing new under the sun. As Donald Trump goes about the 1970s playbook (on steroids) the economic world is shifting in ways that will be impossible to quantify ahead of time.
Think of all the industries intimately tied to trading partner nations and the details upon details within those relationships. In a 2018 NFTRH edition we quoted one advocacy/research source (SEMI on the Semiconductor industry’s calls for moderation of the trade war with China) noting the damage to its industry a full blown trade war would do. Now add industry upon industry to the list of those that will be impacted. Some will benefit but many will be impaired, at least in the near to intermediate-term.
Personally, I think that the US (and its massive consumer economy) willingly allowed itself to be put in the situation that Trump is trying to change. I believe that the American worker was compromised so that the American consumer could live high on the hog, spending his strong dollars on the back of third world labor. As a former manufacturing guy, I hated the US consumer economy; more than Donald J. Trump, who made his leveraged-up fortune on it.
So, am I a Trumpy? Ha ha ha… you know the answer to that question. The question is not whether the structural trade imbalances of the last few decades – by which some were made fabulously rich and many were impaired – were just (my opinion is they were not); the question is what will be the fallout as the bull smashes his way through the China shop, the Canada shop, the Euro shop and most recently the Mexico shop?
Speaking of imbalances and rich and poor the Fed has been right there, substituting inflation for actual productivity every step of the way. That is the after burner that made the trade inequities of the US consumer economy work for the rich and against the working class.
So here we transition the opening notes to the current situation and reference the title, “making America mediocre again?”. Whatever the coming quant for what is happening today, the stock market is not reacting well and CME Fed Funds futures players are at this very moment increasing their bets that the FOMC is going to cut the Funds rate earlier in 2019 (as in the next few meetings). They have been invited to do so, after all. You Have to Invite the Vampire Into Your House
Using Emerging Markets as an example, certain global markets were impaired by the Fed’s rate hike regime and resulting strong dollar. We may not be able to just think about the trade war and quantify the fallout, but we can use common sense, logic and charts. The logic is that what was impaired by a firm Fed (e.g. EM & FM) could out perform against a flaccid Fed while that which out performed (US) could go the other way.
See the FM/SPY chart in Is it Really the US Über Alles?Lots more angles are presented in the report below. NFTRH 554 then got about its usual job of covering all the major markets. Meanwhile, check out this interview.