- After the “new NAFTA,” is a deal with China next?
- Don’t count on it: The latest from Jim Rickards
- The next catalyst for crisis? The scoop on “leveraged loans”
- Unforeseen consequences of closing bank branches
- A sleepy trading day… a reader wishes to clarify… the real problem with “sick care” in America… and more!
As the week winds down, Wall Street is playing a game of “follow the bouncing trade war headlines.”
The big summit among G-20 heads of state gets underway today in Buenos Aires, Argentina. Donald Trump got things off to a rousing start by announcing Canada had signed on to the “new NAFTA” along with Mexico.
But really it’s all about China. Trump and Chinese President Xi Jinping are scheduled to have dinner tomorrow after the formal meetings wrap up.
Around midmorning yesterday, The Wall Street Journal posted a story saying the United States and China “are exploring a trade deal in which Washington would hold off on further tariffs through the spring in exchange for new talks looking at big changes in Chinese economic policy.” The story cited “officials on both sides of the Pacific.”
The market rose.
Then the Hong Kong-based South China Morning Post reported that Trump’s China-bashing trade adviser Peter Navarro would attend the Trump-Xi dinner.
The market fell.
The guest list might well change by the time you read this, and again before the dinner actually takes place.
From where we sit, that’s all noise: The Trump-Xi dinner is serving up a delicious trade opportunity from one of our leading experts — one you’d want to act on right away for maximum profit potential.
More about that shortly. For the moment, we return to an out-there thesis we suggested two months ago.
It goes like this: Trump doesn’t want to make a “deal” with China. He’s not interested in making China “play by the rules.”
Trump himself hinted at this yesterday: “I will tell you that I think China wants to make a deal, I’m hoping to make it a deal, but frankly, I like the deal we have right now… [W]hat we have right now is billions and billions of dollars coming into the United States in the form of tariffs or taxes.”
But if our thesis is right, Trump’s real motive isn’t the short-term revenue landing in the U.S. Treasury’s coffers. It’s the long-term destruction of China as an economic power.
That implies a policy of constant confrontation with China for the duration of Trump’s presidency… with consequences lasting years beyond it.
During September, Jack Ma — the founder of the Chinese e-commerce giant Alibaba and China’s richest man, according to Forbes — forecast a trade war lasting “maybe 20 years… It’s going to last long, it’s going to be a mess.”
Ma’s remarks probably reflect the thinking of the Chinese government’s inner circle — given the revelation this week that he’s a member of the Communist Party.
And they jibe with Asia Times correspondent Pepe Escobar — who sees the Trump administration pursuing a three-part strategy…
- “Displace China from the heart of global supply chains.
- “Force companies to source elsewhere in the Global South all the components necessary for manufacturing their products.
- “Force multinational corporations to stop doing business in China.
“The overarching concept is that unending confrontation with China is bound to scare companies/investors away.”
But Chinese leaders won’t back down from that confrontation. Escobar says they’re determined to endure a 30-year trade war — so the Communist Party can mark the centennial of the People’s Republic in 2049.
But that’s all in the future: You wouldn’t have to wait 30 years to bag a 10x gain from the Trump-Xi dinner this weekend.
Our macroeconomic maven Jim Rickards is tuning out the hour-by-hour headlines and looking at Trump’s inner circle. On the one hand you’ve got Peter Navarro, who Jim characterizes as a “demolition derby driver.” On the other hand you’ve got National Economic Council director Larry Kudlow, who Jim describes as a “cheerleader.” (Kudlow is a reluctant trade warrior at best.)
“The real force,” Jim tells us in an email, “is Robert Lighthizer. And he says absolutely nothing.”
We’ve told you about Lighthizer before. He’s the U.S. trade representative, a Cabinet-level position. He’s also the guy who under Ronald Reagan drove a hard bargain with the Japanese and the Germans — pushing them to build Honda and BMW factories in the United States.
“Lighthizer leans to the Navarro school, but has a lot more finesse,” says Jim. “He would also like to see a good resolution per Kudlow, but not at the expense of giving away the store.
“Trump has complete confidence in Lighthizer. These circumstances are not easy to navigate (especially when you throw in Chinese fear of losing face).
“So my estimate is that a nasty trade war could drag on for another year before relations get better,” Jim concludes.
Just keep that in mind as you see the breathless headlines today and tomorrow about how a “deal” might be “at hand.” The Trump-Xi dinner will be a bust, and as usual the mainstream won’t see it coming.
If Jim’s right — and a similar situation just like this unfolded back in June — he sees a trading opportunity with the potential to turn a $1,000 stake into $10,048. Not overnight, to be sure, but he says “weeks” are totally in the realm of possibility.
That said, you won’t want to wait to act. After all, the dinner is tomorrow night. Click here and Jim will lay out the logic behind this trading opportunity.
Wall Street is underwhelmed by the “new NAFTA” announcement. At last check, the Dow is down slightly, the Nasdaq and S&P 500 up slightly.
Gold is losing a bit of ground at $1,218. Oil is down more than a buck, only 27 cents away from breaching the $50 level for a second time this week.
And now a heads-up: If there’s a single factor that could suddenly set off a bear market and a recession, our most likely candidate right now is something called “leveraged loans.”
In its Global Financial Stability Report this month, the International Monetary Fund describes them as loans generally “arranged by a syndicate of banks, to companies that are heavily indebted or have weak credit ratings.”
A more plain-language description comes from our recovering investment banker Nomi Prins, author of Collusion: How Central Bankers Rigged the World. Leveraged loans “are effectively provided to companies already swimming in debt.
“That was all good and well when interest rates were super low, making it easier for companies to borrow oodles of money,” she explains. “Plus, speculators fueled by central bank ‘dark’ money are still buying bonds in companies carrying leveraged loans. That’s because they provide higher yields than normal bonds.
“This year, leveraged loan issuance reached an annual rate of $745 billion. That’s nearly the same as the prior record of $762 billion in 2007 before the financial crisis and just a bit less than last year’s record of $788 billion globally.”
Note how much of that high-risk debt is “made in America.”
“The companies that have taken on the most leveraged loans,” Nomi says, “are in the technology, energy, telecommunications and health care sectors.”
During November, stresses in the leveraged loan market have begun to reach a breaking point.
Last Friday, Bloomberg reported that an ETF with huge leveraged loan exposure — the Invesco Senior Loan ETF (BKLN) experienced seven straight days of outflows. Investors yanked $600 million out of the ETF — about 8.5% of its total assets.
Among all leveraged-loan ETFs, investors pulled out $1.32 billion in the week ended Wednesday.
Meanwhile, investors’ appetite for new loan issuance is fading fast. At least five companies have scrapped plans to issue new debt — including the manufacturer Jason Inc.
Leveraged loans are one of those things in which the potential for “contagion” is vast: No one knows exactly which heavy hitters in the financial sector have the most exposure.
The good news, if that’s what you want to call it, is that the politicians and central bankers are taking note. The aforementioned report from the IMF cites leveraged loans as one of the areas where “speculative excesses… may be approaching a threatening level.”
Both the Federal Reserve and Fed chairman Jerome Powell have spoken up as well this month. “Sen. Elizabeth Warren has also weighed in,” according to a Bloomberg story yesterday, “likening conditions to that of the subprime mortgage market before the financial crisis.”
We don’t want to jump the gun. We’re not saying leveraged loans are a surefire catalyst for crisis. But they seem like the most likely candidate right now. Check with us again in a couple of weeks. Heh…
From our annals of financial oddities… a surprising risk to the pervasive trend of big banks closing branches.
Hey, teenagers love to fool around in abandoned buildings. Why would banks be an exception?
Police in Hollywood, Florida, say two teens got into an old Bank of America branch in the early afternoon and one of them ended up locked inside the vault. “Luckily, the other one was outside and was able to call 911,” Officer Christian Lata told Miami’s ABC affiliate.
The cops, the fire department, a “Tactical Rescue Unit” from the Broward County Sheriff’s office and two private vault technicians all tried to drill into the wall to reach the boy… and failed.
Then an employee from a still-open Bank of America location nearby showed up… and gave rescuers the combination. That worked.
No word whether the teens will face any charges.
It’s a wonder we don’t see more headlines like this: Banks have shuttered nearly 9,000 U.S. branches during the 2010s — more than 2,000 last year alone by one count.
Mailbag time: The reader who caught our attention on Wednesday with “Gut Assange like a fish” writes in to clarify…
“Dave, I was not being facetious about offering up Assange for Hillary, but rather trying to make the same point you did. Assange would NEVER be at risk because Hillary and most of the elite ruling class are above the law.
“Back to reality — I actually called my senator when the initial outrage over Assange outing the deep state/WikiLeaks news broke. To my complete surprise, she actually answered. I kid you not!
“I told her that rather than prosecuting Assange, he should be hailed as a hero. Her sputtering response made Pelosi sound like an absolute genius!”
After Zach Scheidt’s pointed remarks about the health care system yesterday, a reader weighs in…
“It will be impossible to make Sickcare affordable when two out of three Americans are overweight. Diabetes is the No. 1 killer. Yes, No. 1. It is the No. 1 cause of heart attacks, strokes, dementia, cancer and liver failure. But it is rarely listed on a death certificate for those things even though diabetes caused it. Because of the American diet.
“And no one is talking about changing THAT. Lowering Sickcare costs starts with the patient: They really need to want to be healthy. But let’s be honest: If Americans really wanted to be healthy, they would not eat what they eat and let themselves get overweight.
“But when Sickcare is a profit-driven industry those in charge make more money on sick Americans than healthy ones. It truly is a lost cause. And Zach is wrong. Good health habits should be part of your financial planning.
“Two books to read if you really want to be healthy are Food: What the Heck Should I Eat? and Grain Brain. Both written by top MDs. And get off the drugs. Do you know healthy people on prescription drugs? I don’t.”
The 5: We don’t recall where Zach said you shouldn’t take care of yourself to avoid financial pain later in life. You absolutely must, for reasons we’ve been harping on for years.
That said, a cohort of Americans are taking responsibility for their health… and one of yesterday’s financial headlines underscores that point.
Kraft Heinz is ponying up $200 million to buy Primal Kitchen — a maker of condiments and salad dressings made with no processed or artificial ingredients, no added sugars and no vegetable oils.
Obviously, the suits at KHC know there’s a substantial number of people who will never buy Heinz ketchup laced with high-fructose corn syrup and the company needs to grab some of that market share.
Primal Kitchen was founded by food-and-fitness blogger Mark Sisson, one of the leading lights of the “paleo” movement.
Your editor has been following his work for years; he’s made a positive difference in the lives of thousands of people. Good to see him reaping the rewards now…
Have a good weekend,
The 5 Min. Forecast
P.S. An update from Jim Rickards…
“Events at President Trump’s closed-door dinner tomorrow could catch the whole world by surprise.
“But smart investors can actually profit as much as $10,034… if they take the right steps by tomorrow at midnight.”
Jim just recorded an urgent video clip — it’s not long at all — so you can see for yourself, get a leg up on the mainstream media and position yourself on the right side of what he calls an “earth-shattering event.”