- Because Russia’s not enough: Let’s take on China too!
- How many provocations before China attacks Taiwan?
- Yes, the Beltway class would welcome war with China
- Why Walmart’s still a quality long-term play
- Supply chain fiasco: Ships in waiting spike 66%
- Are we trying “to have it both ways” with GDP?
And so it’s come to this…
As you might be aware, House Speaker Nancy Pelosi has embarked on a jaunt to Asia. This morning, CNN and The Wall Street Journal confirm that her itinerary includes Taiwan.
The government in mainland China views Pelosi’s Taiwan visit as a provocation that will prompt countermeasures — some sort of military activity near Taiwan.
No, we’re not really concerned that this trip will start a nuclear war with China. Not now…
But the trajectory for the rest of the 2020s looks bad.
We said in 2018 that Trump’s trade war would last long beyond Trump’s term. We said in 2019 that the trade war was morphing into a new cold war. Meanwhile, Russia’s invasion of Ukraine has already brought on the biggest crisis with a nuclear-armed power since the Cuban Missile Crisis 60 years ago.
And now our overstretched, dead-ass-broke empire appears hell-bent on stirring up war with both Russia and China? What could possibly go wrong?
Let’s back up a moment: Why Pelosi and why now?
This phenomenon is all part of the escalation process between two nuclear-armed states that Jim Rickards has described for us previously.
Pelosi has the anti-Beijing bona fides to pull it off. She has “a long history of criticizing the Chinese government,” the BBC reminds us — including a theatrical visit to Tiananmen Square two years after the government crushed the protests there in 1989.
Too, she wanted President George W. Bush to boycott the 2008 Summer Olympics in Beijing. As the late Justin Raimondo wrote for Antiwar.com, “Pelosi and the unions she depends on for political support despise all things Chinese for the simple reason that China, today, is more capitalist than the U.S. — in spite of the Chinese Communist Party’s ostensible commitment to Marxist ideology.”
Is there a pecuniary interest here? Near as we can tell, Pelosi’s closely followed stock portfolio does not include an outsized allocation to defense contractors. Then again, we don’t always learn about the buys and sells in real-time.
Pelosi’s visit appears to be the latest step in a series of provocations that sooner or later will push Beijing to attack Taiwan.
U.S. military trainers are now openly stationed on Taiwan. U.S. warships are steaming through the Taiwan Strait monthly. On several occasions — more than you can chalk up to incipient dementia — Joe Biden has appeared to repudiate the so-called “one China” policy that’s kept the peace in the region for more than 40 years.
Nor is any of this an accident.
Neoconservative foreign policy guru Robert Kagan wrote a shockingly candid article in Foreign Affairs this spring. He doesn’t address Taiwan in this passage, but think about Taiwan as you read it…
“Although it is obscene to blame the United States for Putin’s actions in Ukraine, the opinion that the special operation is ‘absolutely not provoked’ is erroneous. Just as Pearl Harbor was the result of U.S. efforts to curb Japanese expansion in mainland Asia, and the Sept. 11 attacks were partly a response to the dominant presence of the United States in the Middle East after the first Gulf War, so Russia’s decisions were a response to the expansion of the hegemony of the United States and its allies in Europe after the end of the Cold War.”
Of course, Kagan thinks such provocations are a good thing — the manifest destiny of the “sole superpower.” Such are the ways of the Beltway class.
So yes, these provocations are on purpose — for a couple of reasons that have nothing to do with Taiwan and everything to do with the American power elite.
For one thing, the Beltway class feels betrayed.
They invested a quarter-century of effort bringing China into their vision of the “liberal international order” — most-favored-nation trade status, membership in the World Trade Organization and so on.
They did so with the expectation that China would become a pliant second-tier power under Washington’s thumb — sort of like Boris Yeltsin’s Russia in the 1990s, but with a massive market of 1.3 billion people that could generate fabulous new profits for American multinationals.
But 20-odd years later, Beijing now lays credible claim to being a superpower in a “multipolar” world. And it hasn’t even tried to give a nod to parliamentary democracy.
Thus, these Beltway types are profoundly butthurt. The final straw was Beijing’s crackdown on Hong Kong in 2019–20. Typical is this individual whose bio describes her — with a straight face! — as “a journalist covering China from Washington”…
You think these folks are just going to drown their sorrows with a stiff drink or three and go home? No, they want payback.
And there’s a generational component at work, too.
Here we borrow from the insights of demographers William Strauss and Neil Howe, authors of The Fourth Turning. In their taxonomy, the baby boomers are a “prophet” generation; the most recent analogue in history is Franklin D. Roosevelt and his cohorts.
In their advancing age, Beltway boomers are looking around and feeling bereft of anything that gives them a glorious purpose of the sort that FDR & co. had — sending millions of young men into battle against Nazi Germany and Imperial Japan.
For a while, they thought the Bush-Cheney “Global War on Terror” might fulfill that purpose, but it didn’t work out so well. Guys in flip-flops with AKs taking potshots at American troops? No glory in that.
And so the boomer mind subconsciously drifts back to World War II.
Richard Maybury, one of the greybeards of the newsletter biz, has written about how the boomers’ conception of WWII was formed at a young age by the 1950s TV documentary series Victory at Sea. Even now, Victory at Sea is first-rate propaganda — slick production values for the day, complete with an original score by Richard Rodgers.
So there you go: In their dotage, Beltway boomers hope to find their redemption with a big-ass naval war in the Pacific.
We can only pray it doesn’t go nuclear. As we often say, there won’t be any markets or economy for us to write about in that case.
In the meantime, the markets seem unconcerned with yet another baby step toward World War III — perhaps because there’ve been so many this year?
Certainly oil prices aren’t reflecting any sort of geopolitical tension. A barrel of West Texas Intermediate is down over $5.50 as we check our screens to $93.10, testing the much-watched 200-day moving average.
The major U.S. stock indexes are inching higher. The Dow is less than 100 points away from 33,000. The S&P 500 rests at 4,136. The Nasdaq has crested 12,400.
Precious metals are holding onto most of last week’s gains, gold at $1,769 and silver at $20.30. The action in cryptos is fairly quiet, Bitcoin at $23,350.
Indicators today: The U.S. manufacturing sector is steady as she goes, judging by the July ISM Manufacturing Index. It fell only a tad from 53 to 52.8 and remains above the 50 dividing line between an expanding factory sector and a shrinking one.
But for a less sanguine indicator, there’s a tidbit buried in Amazon’s quarterly numbers that we overlooked last week: AMZN shrank its workforce by about 6% — nearly 100,000 people — in only three months.
Smaller tech-adjacent companies are cutting head count, too; the July job numbers due this Friday ought to be interesting…
Despite Walmart’s big earnings warning last week, “I still like the stock as a long-term play,” says our income specialist Zach Scheidt.
Walmart is slashing prices on inventory of slow-moving merchandise like apparel — stuff people can’t afford right now because food and fuel take up so much more of the household budget.
But WMT remains a long-term hold in Zach’s Lifetime Income Report. “Investors expect the company to earn $5.90 per share this year,” he tells us, “followed by $6.69 in profits next year. So with the stock trading a bit above $120, you’re getting good value for your investment.
“Meanwhile, Walmart is still generating more than enough cash to continue raising its dividend over time. And a growing dividend is one of my favorite ways to beat inflation in today’s market.”
At today’s price, the yield is about 1.7%. “I would suggest setting aside some cash to buy shares of WMT and putting that cash to work a bit at a time during the next three months.”
The supply chain remains a disaster, even if corporate media have lost interest.
Yes, congestion at the ports of Los Angeles and Long Beach has eased — with the number of ships waiting for a berth falling from 109 in January to 26 as of last Thursday. But the East and Gulf Coasts are picking up the slack, so to speak.
“With the count now rising to 153, the North American containership queue has increased in size by 66% over the past seven weeks,” writes Greg Miller at American Shipper.
Some of the backup might be linked to a strike threat on the West Coast. As a precaution, several shippers altered their vessels’ final destination to East Coast ports. What a mess…
To the mailbag: “So I understand your distaste for using GDP as any kind of measuring device for the health of the economy,” a reader writes.
“You have always made very good arguments — love the lawn mower analogy. It would logically follow that any honest, non-political economist would use other criteria for determining if a recession was indeed happening now.
“Most economists agree that other than a worldwide inflation crisis, the U.S. economy is performing extremely well by all conventional measures — the reason the NBER refuses to agree with you that we are in a recession.
“So how can you use the data point that the GDP has gone down two quarters in a row to declare that we are absolutely in a recession when you yourself claim the GDP measuring stick is bogus? You can’t have it both ways!”
The 5: Remember, though — the NBER doesn’t declare a recession is underway until well after the fact — in the case of the 2008 downturn, a full year later. That’s by design. They make their calls for posterity; they don’t want to rely on figures that all too often are subject to revision based on new incoming data.
As Phil Magness of the American Institute for Economic Research wrote for The Wall Street Journal: “The NBER determination is a rigorous and reputable historical indicator for dating the beginning and end of business-cycle troughs, but it isn’t suitable for real-time policy determinations.”
And again: Flawed as GDP might be, every time it’s fallen for two straight quarters, sooner or later the NBER declares a recession. Hopefully that makes the distinction a little clearer.
As it happens, we noticed a little mainstream criticism of GDP over the weekend — Yahoo Finance columnist Andy Serwer pushing back at what he calls “the GDP complex.”
“There’s an entire apparatus — economists, bankers, government officials and prognosticators — of folks whose livelihoods are predicated on measuring GDP, maintained as the be-all and end-all method for measuring a country’s economic, or even societal, health.”
Meanwhile, the whole definition-of-recession thing has descended into partisan farce — complete with social media censorship.
Facebook posts that allege the Biden administration is moving the goalposts on the definition of a recession are now being flagged as “false information.”
That’s based on the assessment of Facebook’s “fact-checking” partner PolitiFact — even though PolitiFact itself has previously cited the two-straight-quarters standard when pushing back against Republican claims of an impending recession.
“This is yet another reminder that the project of purportedly independent fact-checking on social media is a highly partisan one,” writes Robby Soave at Reason, “in which legitimately debatable opinions are passed off as objective truth.”
The 5 Min. Forecast
P.S. We haven’t forgotten about our solicitation of readers’ memories — or their forebears’ memories — of the Great Depression.
We got quite a few after Friday’s edition. We’ll get to them later in the week — not tomorrow, however, since we’re setting aside most of our 5 Mins. for a major announcement.
P.P.S. Just got word that Jim Rickards is organizing a last-minute Zoom call for readers tomorrow — covering the aftermath of the Federal Reserve’s latest interest-rate increase.
He says it could prove to be America’s “economic angel of death” — making the stock market’s swoon this last spring look like a picnic.
“If you have money in the market, this is something you can’t miss,” says Jim.
It’s set for tomorrow at 11:00 a.m. EDT. Please note that Zoom has a strict limit on the number of people who can take part — 10,000. So if you want in, you’ll need to register at this link.