- NYT says U.S. should side with Russia against China (what?!)
- Our forecast of a 30-year U.S.-China conflict bears fruit
- Reds under the bed? FBI warns govt. employees
- Gold pushes past $1,500 as India-Pakistan worsens
- National debt reaches milestone… bunk beds rebranded as “pods”… a Tom’s Diner follow-up… and more!
Last month, The New York Times published two jaw-dropping sentences.
The paper’s editorial board declared the following: “Given its economic, military and technological trajectory, together with its authoritarian model, China, not Russia, represents by far the greater challenge to American objectives over the long term.
“That means President Trump is correct to try to establish a sounder relationship with Russia and peel it away from China.”
Wait a minute. The Gray Lady and the rest of the Establishment media spent the last three years telling us Russian “meddling” — on Trump’s behalf, no less! — posed a profound threat to Our Hallowed Democracy™.
Now we’re just supposed to forget all that? We’ve always been at war with Eastasia?
Last fall — at a time the mainstream expected an imminent “trade deal” — we suggested both Washington and Beijing were steeling themselves for a conflict that could drag on for 30 years.
We were outliers then. Now the mainstream is starting to catch on. In this morning’s Wall Street Journal we find an international relations professor at Renmin University in Beijing saying, “China is not just preparing for a protracted trade war, but also an escalating conflict.”
In a recent issue of Rickards’ Strategic Intelligence, Jim Rickards laid it out in stark terms: “The trade war is part of a much bigger struggle involving military supremacy, regional hegemony and ideology versus humanism. This new struggle promises to be larger and possibly longer than the Cold War.”
Here’s the problem in a nutshell: The West’s opening to China hasn’t worked out the way Washington’s power elite had hoped.
From the mid-1990s into the early 2000s, Democrats and Republicans alike settled on a consensus: “The globalist view,” says Jim, “recognized problems in China concerning human rights, attacks on religion and the absence of a rule of law under the Communist Chinese dictatorship.
“However, it also held out hope that growing wealth in China combined with increased contacts with the West would result in a gradual movement away from strict Communist rule toward liberal Western values.”
Those hopes have steadily been dashed. It turned out Beijing was able to adopt certain free-market practices to better its people’s standard of living without changing its political system.
If anything, the political system might well be turning more authoritarian under President Xi Jinping…
Cold War leader: More like Brezhnev than Gorbachev [Flickr photo by Palácio do Planalto]
… who increasingly looks like president-for-life. Meanwhile, China is now in a position to challenge America’s technological prowess in areas like 5G wireless. Washington doesn’t like that.
What’s more, Beijing’s success serves as something of a model for other developing countries to follow — a very appealing model for nations that have been pillaged by decades of World Bank-International Monetary Fund schemes. Washington really doesn’t like that.
And so a new bipartisan consensus is forming. It’s not just The New York Times.
Vice President Pence delivered a speech last fall that Jim Rickards thinks will form the basis of Washington’s policy for decades to come. “Beijing,” said Pence, “is employing a whole-of-government approach to advance its influence and benefit its interests. It’s employing this power in more proactive and coercive ways to interfere in the domestic policies of this country and to interfere in the politics of the United States.”
Meanwhile, leading candidates for the Democrats’ presidential nomination sound much like Pence and Donald Trump when talking about China. Sen. Elizabeth Warren: “China weaponized its economy without ever loosening its domestic political constraints.”
Jim goes so far as to label the U.S.-China conflict as a “new cold war.” It comes complete with the suspicion-bordering-on-paranoia that accompanied the old one.
Washington’s all-news radio station WTOP did a three-part series this summer about foreign spies in the capital — especially Chinese spies.
In that series, Brian Dugan, assistant special agent in charge of the FBI’s Washington field office, sent a very clear message to the government employees and contractors who make up WTOP’s core audience: “A spy is going to be someone that’s going to be a student in school, a visiting professor, your neighbor. It could be a colleague or someone that shares the soccer field with you.”
Also this summer, Bloomberg Businessweek had a remarkable story about the feds harassing ethnic Chinese cancer researchers — including U.S. citizens. The story describes “FBI agents reading private emails, stopping Chinese scientists at airports and visiting people’s homes to ask about their loyalty.” Several top researchers have been forced out of the well-respected MD Anderson Cancer Center in Houston.
By now you get the idea: The conflict will be lengthy and multifaceted.
The limitations of our 5 Mins. are such that we barely touched on the technology angle today, and not at all on the military angle. Alas, we’re sure there will be ample opportunities to do so in the weeks and months ahead.
For now, just know the conflict will shape the markets and the economy for a long time to come, even if almost no one appreciates it yet.
“Investors and markets will not be immune to the uncertainties and costs this new war will incur,” says Jim Rickards. “For every allocation to ‘risk on’ assets such as stocks, investors need to consider some safe-haven assets such as cash, gold, land, natural resources and private equity.”
Did Jim say gold? It just crossed $1,500 this morning as the “risk off” trade is once again in full swing.
There’s no new trade war headline in the background, either. But as we write, the Dow has given up much of yesterday’s 300-plus point gain. The S&P 500 and the Nasdaq are holding up better, but both are in the red.
The earnings-season headliner is Disney, which whiffed on both earnings and revenue thanks to the acquisition of the 21st Century Fox movie studio. DIS is down more than 5% at last check.
The big loser this morning is crude, driven not only by trade war fears but also the Energy Department’s weekly inventory report. U.S. oil stockpiles are now 7.7% above their levels a year ago at this time.
And with that, a barrel of West Texas Intermediate is down more than 2% at $51.38, testing its mid-June lows. Less than a month ago it was over $60!
Scared money is moving into not only gold but also U.S. Treasuries. When bond prices rise, yields fall… and the yield on a 10-year note is now 1.64%, a level last seen nearly three years ago.
While gold was rising steadily overnight, it topped the $1,500 mark just after a scary geopolitical headline: It seems markets are suddenly sitting up and taking notice of the latest developments on the Indian subcontinent, which we mentioned on Monday.
Pakistan is suspending trade with its neighbor India — hours after Pakistani Prime Minister Imran Khan warned that war could break out between the two nuclear-armed powers.
Both nations claim the region of Kashmir; at the moment it’s more or less split down the middle. On Monday, India stripped the portion under its control of the autonomy it’s had for decades — a crucial thing for a majority-Muslim state in a majority-Hindu country.
Pakistan, having a Muslim majority, has long identified with the Kashmiri separatist movement in India, so naturally it sees the move in dire terms. Prime Minister Khan says he’s especially concerned that Pakistan will get the blame for any attacks on Indian soldiers carried out by Kashmiri separatists.
[Bonus points: China is also denouncing India’s move. China and Pakistan are long-standing allies against India. China and India fought a border war in 1962 — a dispute that remains unresolved.]
With the debt ceiling now lifted after five months, the national debt has swelled another $300 billion.
Since March, the national debt held steady at just over $22 trillion as the Treasury Department performed “extraordinary measures” to stay under the debt ceiling.
But under the spend-a-palooza passed by Congress and signed by the president last month, the debt ceiling won’t be an issue again until after the 2020 election. Thus the national debt now stands at $22.32 trillion.
The national debt has grown 11.9% during the 2½ years Trump has held office. On that trajectory, the debt would grow to a little over $28 trillion by the end of a second Trump term — much better than the doubling of the debt that occurred under Obama and Bush 43.
Of course a lot can change, and probably will, between now and then. Especially if there’s a recession…
Silicon Valley is giving rise to the pod people.
“Pod” is the trendy name for, well, a bunk bed… and it’s the newest “solution” to the problem of pricey housing in San Francisco. You can rent a pod from a startup called PodShare in both San Fran and Los Angeles for $1,200 a month.
“That price includes cereal, toilet paper and a personal TV,” writes Arwa Mahdawi at The Guardian. “It doesn’t include privacy. But hey, we live in a post-privacy world.
PodShare’s vision of “repurposing underutilized spaces” [PodShare photo]
“Perhaps this concept sounds familiar,” Mahdawi says; “perhaps you are used to calling this sort of dorm-style living a hostel. Well, please don’t. Don’t call it a boarding house, either. Or a tenement. Or a scene straight out of the dystopian movie Sorry to Bother You. Nope, PodShare would rather you called it ‘co-living.’”
Mahdawi denounces the trend as “rentier capitalism 2.0.” Her ire would be better directed at the Federal Reserve, whose post-2008 shower of money has fallen disproportionately on the Bay Area, D.C., New York and the Route 128 corridor surrounding Boston.
To the mailbag, and a follow-up to one of our items yesterday:
“In regard to — umm — about Tom Messina: If he's not free to disown his property as he sees fit, does he really own it?”
The 5: Not really. That’s the subtext of the whole story and the reason we saw fit to make room for it in our 5 Mins.
As we mentioned, yesterday the matter came before a city council committee. Said Councilmember Kendra Black of a possible landmark designation, "It's really just essentially a taking of their property rights.”
And she still was part of a unanimous vote in favor of the designation. The full city council will likely vote sometime before the end of this month.
Best regards,
Dave Gonigam
The 5 Min. Forecast
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