Upping the Ante: The Hundred Years’ (Trade) War

  • A century of U.S.-China conflict? Global elites are preparing
  • Back to a “bad news is good news” stock market
  • Why is Apple a federal target along with Google et al.?
  • Balanced budget dissed (again) as debt ceiling looms
  • Crude craters… Catching up with a stock-photo icon of the 2008 crisis… The 5 inadvertently messes with Texas… and more!

And we thought we were sticking our necks out there last year envisioning a 30-year trade war. Seems the elites at Bilderberg last week were talking a 100-year conflict.

Or so we’re told by Martin Wolf — perhaps the most high-profile columnist at the Financial Times.

US China Trade Conflict

Of course, exactly who says what at the annual gathering of global elites is kept hush-hush. But Wolf can draw broad strokes about the elite consensus: “Across-the-board rivalry with China is becoming an organizing principle of U.S. economic, foreign and security policies.”

And so the elites are beside themselves: “Anybody who believes a rules-based multilateral order, our globalized economy or even harmonious international relations are likely to survive this conflict is deluded.”

Gee, what have we been suggesting for all these months now? Even when the mainstream was saying in March and April that a “deal” on trade was all but done?

“Slowly, Wall Street has caught up to the reality and is taking the trade wars seriously,” says our Jim Rickards.

But there’s more to it than that…

“The trade war is part of a much larger struggle between China and the U.S. for hegemony in Asia and the Western Pacific,” says Jim.

“China and the U.S. are in a new cold war being fought on many fronts including trade; technology; rights of passage in the Taiwan Strait and the South China Sea; and alliances in South Asia, where China’s Belt and Road Initiative is promising billions of dollars for infrastructure development and the U.S. is responding with arms deals and bilateral trade deals.

“Even if a modest trade deal is worked out with China this summer,” he concludes, “it will not put an end to the larger struggle now underway. This new cold war could last for decades.”

Let’s just hope for everyone’s sake it doesn’t become a hot war. Around here we’ll be keeping a constant pulse on it in the months… years… and decades to come.

[Ed. note: Jim Rickards is less than 24 hours away from doing something he’s never done before. If you own any stocks, ETFs, bonds, real estate or cryptocurrencies — heck, even if you don’t and you’re just interested in the markets and the economy — please pay heed to the very top of tomorrow’s 5.]

To the markets today, where it feels like old times: Bad news is good news again.

A few years ago, the stock market would perversely rally after every bit of weak economic data. The logic went like this: Bad data would push the Federal Reserve in the direction of more “dovish” monetary policy — flooding Wall Street with more of that easy money it loves so much.

And so it goes this morning. ADP, the big payroll processor, is out with its monthly estimate of private-sector job creation. Analysts look upon this figure as a preview of the Labor Department’s monthly job report that’s typically issued two days later.

The number positively stunk. ADP estimates private employers created only 27,000 new jobs in May. The “expert consensus” among dozens of economists polled by Econoday was 175,000. Juuust a wee bit off.

And with that, the Dow and the S&P 500 are in the green — adding to yesterday’s monster rally, which itself was prompted by Fed dovishness!

At last check, the Dow has inched past the 25,400 mark. The S&P, which vaulted back above 2,800 yesterday, is likewise in positive territory.

After Fed Chairman Jerome Powell opened the door to interest rate cuts yesterday, traders in fed funds futures are pricing a 75% probability of a cut this summer — either at the next Fed meeting in two weeks or the one after that in late July.

The Nasdaq, however, isn’t sharing in today’s rally. Perhaps there’s some lingering skittishness about the prospects of the tech giants — given that Amazon, Facebook, Google and Apple are now potentially in the feds’ antitrust crosshairs.

Why Apple, we wonder?

We get how Google, Facebook and Amazon all exercise quasigovernmental levels of reach into most everyone’s life — seeking to assimilate us into some sort of compliant, consumerist Borg.

But Apple CEO Tim Cook has to be looking at the headlines and thinking what Detective McNulty would sometimes say on The Wire: “The **** did I do?”

For now, no one at the Justice Department is saying what Apple “did.”

Sure, app developers resent the 30% cut AAPL takes from app revenue. But that’s nothing recent — it’s been Apple’s policy going back to the launch of the App Store during the Dubya presidency.

We can’t help wondering — and granted, we’re speculating here — if the real issue is Apple’s commitment to heavy-duty encryption technology to protect your personal data.

During the Obama presidency, we took note now and then of the feds’ efforts to strong-arm Apple into creating an electronic “back door” that would allow the feds to bypass Apple’s encryption and snoop on your devices if the feds so chose.

The problem, as Tim Cook himself pointed out, is that hackers can just as easily exploit a back door as the feds. Time and again, Cook patiently tried to explain there’s no form of encryption that only “good guys” could get around, but FBI chief James Comey was too dense to grasp that reality.

Comey is long gone, of course, but the institutional conflict remains. We find it interesting that when the Justice Department and the Federal Trade Commission divvied up their investigations into the four tech giants, Justice took Apple…

Crude prices are falling hard again today.

The Energy Department is out with its weekly inventory numbers. They show a huge build in U.S. stockpiles — now 10.7% above their levels at this time a year ago. A barrel of West Texas Intermediate has shed more than two bucks to $51.34 — a price last seen in mid-January.

For the record: Nearly no one on Capitol Hill gives a flip about a balanced federal budget anymore.

Every year, Sen. Rand Paul (R-Kentucky) submits a budget proposal he calls the “Pennies Plan.” That is, it calls for cutting federal spending by one penny for every dollar spent. Actually, that was the old plan — now it’s two pennies because Uncle Sam’s fiscal house is such a shambles.

This year it won’t even get to the Senate floor. The measure failed on a procedural vote Monday night. All the Democrats and a majority of Republicans gave it the back of their hand.

Paul actually anticipated that outcome. Jaded as he must be, this was the most outrage he could summon before the vote: "We teach our children that money doesn't grow on trees, and then they grow up watching politicians pretend otherwise. Meanwhile, our debt soars past $22 trillion, endangers our country and artificially limits what our nation can achieve."

Oh gee, that reminds us: There’s another round of debt-ceiling Kabuki theater just around the corner.

The national debt has hovered just over $22 trillion since the debt ceiling came back into force three months ago. Whenever this happens, the Treasury resorts to “extraordinary measures” like borrowing from government pension funds to stay under the limit.

But these Band-Aids only last so long — eventually Congress has to once again raise the limit, usually after much partisan grandstanding. Failing that, Uncle Sam starts to default on the debt — a nasty scenario we explored at some length last year.

The precise drop-dead date is always a squishy thing. On Monday, The New York Times cited “fiscal analysts” as saying there’s time until October or even early November. But the aforementioned Jim Rickards is hearing a much earlier date from his contacts in Washington — maybe as early as mid-July.

Unlike other debt-ceiling showdowns of recent years, impeachment will complicate matters.

It’s been two weeks and a day since we mentioned the impeachment train was leaving the station. Since then, House Speaker Nancy Pelosi continues dragging her feet, but still more key committee chairmen have come out in favor of an impeachment inquiry. So have the bulk of the 24 Democrats running for president.

Then again, there might be method to Pelosi’s stalling tactics, according to the insightful political reporter Michael Tracey: “She knows impeachment is coming, it's just a matter of timing.

“So what time period would maximize the impact of impeachment proceedings? Probably not during the summer. So she's delaying so that the proceedings are initiated after Labor Day.”

Makes total sense. As Bush 43’s chief of staff Andrew Card said, “From a marketing point of view, you don’t introduce new products in August.”

He was talking about the propaganda buildup to the Iraq War. Sure enough, it was just after Labor Day 2002 that the U.S. “intelligence community” cranked up the hysteria about how Washington couldn’t wait for ironclad proof of Saddam Hussein’s supposed dastardly intentions. Or as an infamous New York Times story put it, “The first sign of a 'smoking gun,’ they argue, may be a mushroom cloud.”

Whelp, savor the summertime calm while you can…

Emily’s musings during yesterday’s market notes — about the photos financial websites use to illustrate their stories — prompts a 5 flashback today.

For a few weeks during the Panic of 2008’s worst moments, a trader at the Frankfurt Stock Exchange became the face of the crisis, thanks to a sharp-eyed photographer from Getty Images and Getty’s many website clients.

Her many variations of facial expression — concern, exasperation, revulsion — were such that you couldn’t get away from her. As a blogger at Foreign Policy noted at the time…

German Trader

Yeah, remember her now?

Within a few weeks the trader was unmasked as one Simone Wallmeyer. From the U.K. Independent: “With her shock of blonde hair, learned half-rimmed spectacles and a look that has an extraordinary ability to reflect each and every market jitter, 47-year-old Ms. Wallmeyer, who works as a broker for Germany’s ICF securities bank, seems to capture the emotions of anyone who has money invested anywhere right now.”

She wasn’t quite sure what to make of the phenomenon. “This may have something to do with my face, but it probably has more to do with where I sit on the stock exchange floor.”

Good point: Plug her name into Google Images and up comes a host of pictures with the exchange’s big screen in the background.

So where is she now, you ask? It appears she has a LinkedIn page, and she’s still with the same firm…

Simone Wallmeyer

Looks as if she was promoted in 2010 to the company’s top market maker — a prestigious position linking buyers and sellers of many kinds of securities. Good on her…

Don’t start hating on Texas,” a reader writes after we mentioned in passing that it took the legislature four years to pass a bill giving a break to young proprietors of lemonade stands.

“You have to keep in mind the Texas legislature only meets every two years, not every year like many states. We also never saw the police pulling stunts like in Colorado very often, maybe in a one-off but not in a way that would force the issue so that it did get resolved as it should.”

”Unlike all the other government-dependent states in the union,” writes another Texan reader, “our legislature meets every other year for only 140 days. Could it be that the minor business bill was a fairly low priority? When you have a short amount of time, you tend to focus on the big issues. 

“Oh, if only the federal government operated on that same schedule! We’d be playing Louis Armstrong’s ‘What a Wonderful World’ in perpetuity!”

The 5: Careful straining a muscle patting yourselves on the back.

We get the thing about meeting once every two years. On the other hand, your House of Representatives doesn’t seem very, well, representative. It has only 150 members — which works out to one member for every 167,637 people, per the 2010 Census.

The Founders envisioned 50,000 people at most for federal House districts.

We see Texas has no term limits for state lawmakers, though. For decades, your editor thought term limits were a good thing. Then my wife and I moved to a state that has them.

Term limits came into effect in Michigan with the 1992 election — six years for representatives, eight years for senators.

The decades since have given rise to a legion of legislative aides and lobbyists. With an ever-changing cast of characters among the lawmakers, these full-time “professionals” become the ones who know how to game the system… where the bodies are buried… in general, how to “get things done” — for their own benefit, of course. They’re a sort of permanent government grafted onto the elected legislature. They’re a malign influence.

Just saying term limits aren’t a panacea. There are no “hacks” or shortcuts when it comes to reining in government. Only strict curbs on government power in the first place can accomplish that.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. How’d you like to collect a “bonus” like a well-heeled Wall Streeter?

That’s the idea behind one of our most successful premium advisories.

“Heck yeah,” enthuses a reader from Pennsylvania’s Lehigh Valley. “Getting the chance to make $1,000 a week is easy using this research service. And that’s with just a little money put in.”

If it works for him, it can work for you. But for best results you’ll want to get started before the market close this coming Friday. That’s two days from now. Check it out right here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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