Two Bullets Dodged (What About the Third?)

  • Trade deal — probably for real this time, but does it matter?
  • With a shutdown averted, market will shrug off impeachment
  • Socialism and the wrong lesson from Britain’s election results
  • Americans slam wallets shut going into holiday shopping season
  • Reader on the fence about The 5 after our climate-change take.

So we finally have a “substantial phase one” trade deal… and Wall Street is selling off.

After we went to virtual press yesterday, President Trump gave his blessing to a limited agreement — one that at least cancels the steeper tariffs on Chinese imports that were due to take effect Sunday. The S&P 500 and Nasdaq closed at record highs. The Dow, almost but not quite.

All fine and well, but where was the confirmation from the Chinese side?

Confirmation came shortly after the open this morning… but as we write, the Nasdaq is flat while the Dow and the S&P are down about a quarter percent.

Of course, the devil is in the details… and the details are somewhere between “vague” and “nonexistent.”

On Twitter the president is promising current 25% tariffs would remain in place… but 15% tariffs on other goods would be cut to 7.5%.

In Beijing, Vice Minister for Commerce Wang Shouwen did not offer up numbers. Nor did he discuss Chinese purchases of U.S. farm goods. He also said the deal would have to go through “legal procedures” in both countries before it’s signed.

And unlike when Trump hyped a “substantial phase one” trade deal in October, a date and venue for the signing have not been set.

Still, we suspect the deal’s for real this time. Trump needs a “win” he can tout at his campaign rallies. After so much anticipation for such a long time, no deal would tank the major U.S. stock indexes, and this president has — for better or worse — hitched his fortunes to those of the stock market.

And yet our long-term outlook stands — a 30-year conflict that extends far beyond the realm of trade.

Trump says negotiations for a “phase two” deal will be ongoing during 2020. The potential for those talks to go awry is… well, nearly infinite.

If the president thinks it’s to his political advantage to accuse Chinese leaders of acting in bad faith, he will — doubly so if Democrats find it to their political advantage to accuse him of not being tough enough on China.

Beyond 2020, Washington and Beijing are locked in a new cold war — no matter who occupies the White House — for reasons we described in depth last August.

In any event, the drop-dead date for new tariffs on Sunday is off the table… and so apparently is another drop-dead date we were concerned about.

Ten days ago we warned that the window from Dec. 15–21 was fraught with peril for the markets. In addition to the tariff deadline this coming Sunday, there was also the possibility of another “partial government shutdown.”

The new fiscal year began on Oct. 1, but Congress and the White House have delivered only stopgap measures since. Without either another stopgap or an honest-to-God budget, it’s shutdown time come Saturday, Dec. 21.

But yesterday, leading Democrats and Republicans on Capitol Hill said they came to a tentative agreement on a budget for 2020. If The Wall Street Journal is to be believed, a top White House official says Trump “likes what he sees.”

As with the trade deal, many details have yet to be hammered out. But it does appear the markets will dodge two of the three bullets we saw coming a few days ago.

And with those two bullets missing the mark, the third doesn’t matter.

Impeachment amid a government shutdown is unprecedented in U.S. history and had the potential to rock markets. Impeachment with no shutdown? No problem, judging by the experience of 1998.

We return today to a chart we ran a couple of months ago. The House voted to begin impeachment proceedings against Bill Clinton on Oct. 8, 1998. The House voted “yea” on impeachment and sent the matter to the Senate on Dec. 19…

Impeachment was Bullish

The starting point this time is probably best set at Sept. 24 — when House Speaker Nancy Pelosi gave her blessing to impeachment proceedings…

And It's Bullish Time Too

Talk about history rhyming. This morning the House Judiciary Committee approved articles of impeachment and the full House will vote sometime next week.

In the currency markets, the British pound is surging to its highest level against the dollar in 18 months — $1.33 — after a blowout election victory for the Conservative Party.

The outcome sweeps away 3 and a half years of back-and-forth over Britain’s departure from the European Union. Says Prime Minister Boris Johnson: "We will get Brexit done on time by 31 January – no ifs, no buts, not maybe."

He’s got an overwhelming majority to accomplish that task — 364 seats in Parliament out of 650 total. Many seats that had been held by the Labour Party for decades fell to the Conservatives.

As long as we brought up the British election, there’s a trope we’re seeing about what the outcome means for the U.S. election in 2020 — and we need to shoot it down.

The trope comes exclusively from American commentators, mostly centrist Clintonite Democrats, and it goes like this: “British voters rejected the socialist politics of Labour leader Jeremy Corbyn. If Democrats embrace a candidate like Bernie Sanders, the party risks the same outcome.”

Or as front-runner Joe Biden said, “Look what happens when the Labour Party moves so, so far to the left.”

That’s a blinkered Ameri-centric outlook. This election was all about Brexit — a topic on which Labour was hopelessly divided and muddled. During elections in 2017, the party’s official position was to respect the outcome of the 2016 referendum. This time, the party called for a redo referendum.

Boris Johnson, in contrast, called unambiguously to “Get Brexit done.” On Tuesday he took to a bulldozer emblazoned with that slogan and busted through a wall labeled “Gridlock.”

Brexit Done

Boris Johnson at the wheel, with an inspired imitation of the Kool-Aid Man…

Many of the districts Labour lost last night were where voters backed Brexit in 2016. Johnson recognized as much in his victory speech: "You may intend to return to Labour next time round, and if that is the case, I am humbled that you have put your trust in me.”

Meanwhile, back across the pond, whether we like it or not… socialism is popular.

The big economic number of the day is a big disappointment.

The Commerce Department says retail sales grew only 0.2% in November — way off the “expert consensus” among dozens of economists polled by Econoday. They were counting on a 0.5% jump.

If you strip out auto sales (because they’re volatile) and gasoline sales (because fluctuating gas prices can skew the number)… the outcome is even worse. Expectations were for a 0.4% jump, but the number was flat.

MarketWatch tried and failed to put lipstick on this pig. “One potential reason sales fell short of Wall Street’s forecast: A late Thanksgiving pushed the first big weekend of holiday spending into December. Cyber Monday took place on Dec. 2.”

C’mon. Wall Street economists aren’t the brightest bulbs, but even they can adjust their forecasts for when Thanksgiving falls on the calendar!

To the mailbag, and some feedback we fully expected after yesterday’s episode…

“I usually enjoy reading The 5 Min. Forecast and find it interesting, informative, relevant and fairly neutral politically.

[OK, we see the “but” coming from a mile away…]

“And I have found this to be more true of your reports than some of the others published by Agora Financial.

[Oooh, nice head fake there!]

“However, after 1) reading your one-sided view of climate change (I didn't realize Jim Rickards is a scientist), apparently without checking out all the facts, and 2) your trivializing the efforts of Greta Thunberg, who may not be well known to the 'elite' in this country but is quite well known to high school students (the future U.S. voters), I'm not sure I want to continue reading your publication. And do you really expect a 16-year-old girl to have the solutions to this problem?

“Over the past few months I've been increasingly getting the impression that if some issue is getting a lot of attention but it isn't necessarily in the best interest of people making more money, Agora Financial will only the present the 'side' that benefits them or their readers (or who they think their readers are) regardless of whether it's good (moral, ethical) for the majority of U.S. citizens and/or the world.

“If you're going to present the 'facts' on an issue, I would like to hear information that's based on what experts on both sides have to say (not just on the 'facts' presented by a clearly biased person.”

The 5: We wish you’d have specified which “other” issues you believe we’re skewing, so could address your concerns. But we’ll stick to climate change today.

First, the science. The most alarmist predictions — for instance, Rep. Alexandria Ocasio-Cortez saying “the world is gonna end in 12 years” — stem from a misreading of a 2018 report from the Intergovernmental Panel on Climate Change.

Reason science writer Ronald Bailey studied the report closely and sums up: “If humanity does nothing whatsoever to abate greenhouse gas emissions, the worst-case scenario is that global GDP in 2100 would be 8.2% lower than it would otherwise be.

“Let’s make those GDP percentages concrete. Assuming no climate change and a global real growth rate of 3% per year for the next 81 years, today’s $80 trillion economy would grow to just under $880 trillion by 2100. World population is likely to peak at around 9 billion, so divvying up that GDP suggests that global average income would come to about $98,000 per person. Under the worst-case scenario, global GDP would only be $810 trillion and average income would only be $90,000 per person.”

That doesn’t seem like the kind of dire outcome that would result from epic floods, droughts and cyclones. By the way, the report finds the evidence does not support claims that such events are increasing in frequency or magnitude.

But there’s a bigger issue beyond the science — the issue of “who decides.”

“Practically every one of the proposals being made to deal with the claimed problem of global warming sees salvation in the caring and tender arms of those in governmental authority,” writes Citadel econ professor Richard Ebeling.

“From carbon taxes to the Green New Deal, politicians, bureaucrats and self-selected ‘experts’ are to regulate and centrally plan the environmental redemption of the world.

“The master planners within nations and in international, intergovernmental planning agencies are to decide the fate of mankind, that is, by those who arrogantly claim to possess the knowledge, wisdom and ability to set the planet right, and all of them with asserted unbiased and selfless motivations and intentions.

“Nearly nothing is to be out of their purview and power: where and how we shall be permitted to live and make a living, the foods we are to be allowed to eat, the clothes we will wear and the means of transportation by which we get around.”

Essentially, climate change can’t possibly be solved without massive top-down central planning. It’s not a reach to wonder if that’s the actual agenda and climate change is just an excuse to implement that agenda.

Have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Has any advocate of radical measures to combat climate change explained how they’ll get the Chinese government to go along? Although coal makes up a shrinking portion of China’s energy mix, its overall coal consumption continues to grow.

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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