The U.S. is enslaved by avarice, vanity and narcissism with fears causing mayhem:

  • avarice – the attitude of market makers and investors whose greed knows no bounds;
  • vanity – Trump’s obsession with a war against China which “the chosen one” started;
  • narcissism – Trump’s injudicious economic policies arrived at by whim, pride, ego and tantrum;
  • fears of declining economic growth, recession, stock market declines, inverted yields, tariffs, declining earnings, et al. 

I wish that I had other investment news to write about other than Trump’s irrational antics. This week, I counted no fewer than 6 occasions on which Trump changed his mind on serious economic issues.

 In my opinion, this week, Trump could have lost the 2020 election if there had been a robust opposition which could have shredded him and his policies. The Democrats are embroiled in electioneering, domestic trivia, Obama care changes, impeachment, imagineering, left wing and the “gang of four” issues. They are ill prepared to make a concerted attack on Trump’s policies. They are not focused on the primary issues of tariffs and economic growth. 

 Please read on for comments about Trump’s changes of mind and his “U” turn which were gilt edged opportunities for Democrats to attack him. But they did not. It was left for the media to question Trump’s irrational policies. Anyone listening to the Democrats debates and electioneering would not know anything about tariffs, declining growth, recession fears, et. al.

 Until Friday, equity markets, had a better week. The short rally continued everywhere on Monday but, on Tuesday negativity returned in most markets. Wednesday was a mixed day in Asia. Positivity returned in the EU and U.S.  Thursday’s trade was affected by flash PMIs which improved for the EEC but, for the U.S. were lower than both last month and forecasts. Manufacturing edged into contraction territory. Friday was Powell’s day at Jackson Hole” but China ruined the party by announcing its tit-for-tat tariffs on US$75bn of U.S. imports. When summing up the symposium, Powell said that the U.S. was in a “favourable place” and that trade issues, not overly high interest rates, were the cause of declining growth. This prompted Trump to tweet that the Fed was an enemy”. Trump then ordered all U.S. companies toimmediately start looking for an alternative to China”. In another tweet, Trump retaliated against China’s retaliation by increasing tariffs. The 25% tariffs were jacked up to 30% and the 10% tariffs will be jacked up to 15%. Meanwhile, U.S. equity markets declined heavily dragging Europe down with them. Forecasts for next week are not good.

 When Trump first introduced tariffs, one of the reasons he outlined was to make imported goods more expensive so that American businesses could take advantage of price differentials and move manufacturing facilities from China to the U.S., increase jobs in the U.S. and, at the same time, reduce imports. Reports are that it is not working and the August flash PMI illustrated that manufacturing activity had declined. On Friday, the closure of another (antiquated) U.S. steel mill was announced.

  • Some American companies, which manufactured goods in China for export to the U.S. (thereby taking advantage of cheaper labour and admin costs in China), are relocating (reports say that 50 have done so), but most do not move to the U.S. 
  • They are moving elsewhere (Vietnam, Thailand, Indonesia, Bangladesh, etc.) where labour and admin costs are cheaper (that is cheaper than in the U.S.). 
  • Exports to the U.S. have not declined, now they are beginning to increase from un-tariffed countries. Will Trump spread tariff coverage to all of Asia?
  • So, Trump failed in this aspect of his intentions for tariffs and a trade war with China. 
  • Similar applies to import tariffs on steel and aluminium.

Trump’s policy is, therefore, backfiring and being replaced by an “obsession aimed at damaging China at all costs.” Trump declared that the U.S. was “giving” US$500bn per annum to China (this number is wrong and it is a lie). The U.S. does not “give” it away. It buys products demanded by U.S. consumers. Trump declared “Someone had to stop China” and later declared that “he was the chosen one“. Trump has not stopped China, but he has slowed down its growth, caused it to speed up its own technical development, diverted production too un-tariffed countries and put the economies in the rest of the world in jeopardy.

Late on Tuesday, Trump did a “U” turn when he totally changed his tune on the economy and the effect of tariffs. He admitted that there might be a “short recession” because he is waging “ a much-needed trade war with China”. He said that there may be “short term pain” but, in the long run, it would be a gain as the U.S. would get a deal which favoured them. This change of attitude was an outright admission that he previously lied re: 

  • Trump’s tariff policies have weakened the U.S. economy (something which, hitherto, he had vehemently denied);
  • this weakening has escalated to such an extent that Trump has too contemplate recession (a possibility that he has hitherto scoffed at);
  • tariff costs are paid by Americans, not by China (a 100% “U” turn and acceptance of his lie that China pays).

Trump still claims that China will succumb as it is being hurt more than the U.S. and is desperate to do a deal. I question the facts of this claim and point out that if Trump could not get a deal when the U.S. economy was strong, he is unlikely to get a deal when its weakened by slower growth or a recession.

Further, how does Trump intend to stop a recession once its begun? He can inject stimulus (which will increase the national debt even more). He suggested tax cuts for the rich and a cut in payroll taxes but then dismissed the idea. Whatever he decides, if it does not address the rout cause of a recession, it is unlikely to work in the long run. The only option is to do a “fair” deal with China now which will stave off a recession but not humble China. 

Within 24 hours of Trump making a “U” turn he was backtracking. On Wednesday, he maintained that a recession in the U.S. was a long way off, the economy was still the strongest in the world and the U.S. was winning the trade war. He then proclaimed himself as “the chosen one” to attack China’s unfair trading practices and criticized previous presidents for not doing so (if you remember, Obama was faced with the Lehman’s recession, caused by the previous Republican administration, and had to concentrate on rescuing the economy which he did very well). China had been a prime mover in over-coming the worldwide recession which followed the Lehman’s crash, a fact never mentioned by Trump.

Trump changed his tune again when he confirmed rumours that the White House was reopening its re-consideration of tax cuts for the rich and a payroll tax cut to stimulate the economy. This will, like all tax cuts, reduce the Treasuries income and increase the national debt.

Then came Friday’s retaliatory tariffs from China which I have briefly described above.

Dizzy from all the toing and froing as Trump turns one way then another? Its hardly surprising.

The U.S. 2020 election is still 15 months away and yet electioneering has been ongoing for 3 months or more. Its not all that long ago when there was electioneering for Congress and the House. Before that it was the 2016 election, the inauguration and then the settling in period. The U.S. is the “land of eternal elections”. There has to be a better system than that adopted in the U.S. 

This week, the best performing index was the ASE (Athens – up 5.05%). 2nd best was the Shenzhen Composite (up 3.54%). The best performing sub-index was the UTIL (up 0.12%). 

  • This week most U.S. equity indices clocked up a 4th. successive week of losses.
  • The price of WTI crude down 1.28%. The price of gold gained 0.92%.
  • Sterling strengthened again as doubts grow that BOJO can take the UK out of the EU without a deal. The stumbling block still appears to be the NI border issues where the UK has offered no alternative to the backstop. The yuan weakened to 7.10 (2007 levels) and the euro broke 1.11 headed lower before the US$ devalued on Friday.

Recently, I speculated that, inter alia, investing in equity funds was no longer viable due to volatility as, no sooner is there a buy signal, than equity prices decline again. Similar comments apply to ETFs priced at closing prices. I am also concerned when I see losses on equity funds exceeding declines in relevant indices.

My full report summarizes daily movements, news items and my diatribes. Sadly, most are about the U.S., Trump and his “henchmen”.