Dear Reader, The Australian Financial Review has a headline today that comes straight from the mouth of captain obvious: ‘Trump's trade war threatens resources boom’. Thanks for the heads up… It’s in response to BHP reporting its full year results yesterday. The stock price initially fell on the news, but a strong overall market dragged the mining bellwether back into the green for the day. The gist of the Fin Review article is that this is as good as it gets for BHP: ‘BHP’s confirmation of a sturdy 2019 profit and a record final dividend has landed with fair warning that a three-year-long resources boom that has swelled the coffers of shareholders and nation alike could well be snuffed out by Donald Trump’s trade war with China. ‘The message delivered with BHP's full-year profit by an otherwise relentlessly positive chief executive, Andrew Mackenzie, was that President Trump’s coalition of political populism and market protectionism has started to hurt more than just global sentiment and its unsettling effect on trade flows and commodities prices will likely mean that, at a headline financial level at least, these 2019 results could prove a high water mark.’ I agree. In my view, the bull run for BHP is coming to an end. But there is something much bigger going on here. Journalists love to frame the trade war as ‘Trump’s’. It is simply a result of ‘populism’ and ‘protectionism’. This is flat out wrong. In the age of Trump, journalists everywhere have a bad case of TDS (Trump Derangement Syndrome), which makes it impossible for them to see the real issues. And the real issue here is that the US/China trade war is not really about trade. It’s about ideology. It’s about communism versus capitalism. Because universities are now leftist institutions, the majority of journo’s these days tend to write about China and communism with sympathy. Their contempt for capitalism is obvious. This is dangerous, because it fails to portray China as it really is. That is, a communist dictatorship trying to cheat and steal its way to economic dominance. As I’ve said before, China gained entry into the World Trade Organisation on the proviso it would open up its economy and liberalise trade. It didn’t. Instead, it engaged in protectionist policies to amass trillions of dollars in foreign exchange reserves via trade surpluses. It did so, in part, by trashing its environment and exploiting its workers. The US and other developed nations simply couldn’t compete. Sure, consumers in the West got cheap running shoes, toasters, and computers. And as Chinese savings were recycled back into the US bond market and interest rates went down, we didn’t notice that it resulted in house prices going up so much that we had to take on mountains of debt to afford one. But don’t worry. Have you got the latest iPhone? And thanks to the technological supply chain moving to China too, the communists got to see how advanced technology works. And they stole it. Now, the Trump administration has said enough is enough. They don’t believe the US should assist the rise of a communist nation. Hence the trade war. It might be leading to a weakening global economy and wobbly stock markets, but Trump realises it’s in the best interests of the US (and her allies) over the long term. Another piece from the Fin Review today reports on this issue. I hope you can get past the mild case of TDS coming through in the select quotes below: ‘A defiant Donald Trump has issued a blistering defense of his trade war against a "grifting" China, suggesting any short-term negative fallout was "irrelevant" to the bigger picture. ‘In an impassioned press conference from the White House on Tuesday (Wednesday AEST), Mr Trump insisted yet again that the US economy is "very far from a recession". ‘But he also took aim at economists and other critics of his trade dispute with Beijing — which has been widely blamed for harming the US economy and crunching stock markets. ‘"Somebody had to take China on," a visibly angry Mr Trump seethed. ‘"And it's about time, whether it's good for our country or bad for our country short-term. ‘"Long term, it's imperative that somebody does this."’ The China question is getting more airplay in Australia now too. A few weeks ago, Labour backbencher Andrew Hastie wrote an op-ed in the Sydney Morning Herald about China. Apparently it was controversial. For telling it like it is. He wrote: ‘We must be intellectually honest and take the Chinese leadership at its word. We are dealing with a fundamentally different vision for the world. Xi Jinping has made his vision of the future abundantly clear since becoming President in 2013. His speeches show that the tough choices ahead will be shaped, at least on the PRC side, by ideology — communist ideology, or in his words, by "Marxist-Leninism and Mao Zedong Thought". ‘Xi’s view of the future is one where capitalism will be eclipsed and "the consolidation of and development of the socialist system will require its own long period of history…it will require the tireless struggle of generations, up to 10 generations". ‘The next decade will test our democratic values, our economy, our alliances and our security like no other time in Australian history.’ Indeed it will. Australia is caught in the middle of this ideological war. China is our largest trading partner, the US is our largest investor and most important ally. If you’re an investor in commodities, you need to follow this story. If the US gets the upper hand over China (which I think it will), there will be fallout for the Aussie economy in the form of weaker commodity prices, especially for bulk and industrial commodities. Given we have a coalition government, I think it’s fair to assume we’ll be backing the US in this fight. Perhaps not overtly, but the US is our ally, not China. To reinforce this point, The Spectator recently wrote about former PM John Howard’s views on China: ‘At a meeting earlier this month with top US officials, he [Howard] described the upheaval in Hong Kong as ‘a glimpse of the future for Chinese society’ and questioned the long-term viability of China’s economic and political system. ‘Australia’s relationship with Beijing is becoming more difficult because the regime in China is a lot more authoritarian’ and that we should not be mesmerised by China’s ‘overwhelming economic importance to Australia’. In other words, trade isn’t everything. Ideology is. Regards, | Greg Canavan, Editor, The Rum Rebellion |
| ..............................Advertisement.............................. .......................................................................... Brace Yourself: Good News Coming By Bill Bonner ‘And if thine eye offend thee, pluck it out, and cast it from thee.’ Jesus The big event this week is the Federal Reserve meeting in Jackson Hole. That is probably what is behind the rally of the last few days; big traders are front-running the Fed. Everybody thinks the Fed largely controls the US economy and stock market. And everybody thinks cutting rates is good for both. And everybody knows Jerome Powell is not going to disappoint them. The only argument, led by the president of the US himself, is over how much cutting the Fed should do. Here’s POTUS: ‘The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!’ Jim Beam economy Gosh. Is it that simple? All this time, we’ve thought of an economy as a complex organism…responding to billions of inputs — prices, culture, innovations, preferences, weather…everything. And for lo so many years, central banks, too, thought they should be careful. They worried about queering the information flow…or about consumer price inflation…or about ‘overheating’ the economy. They thought they needed to ‘take the punch bowl away’ from time to time, just to cool things down. And come to find out…they were all wrong. The whole ‘world economy would be great and quickly enhanced’ by just cutting rates…and cutting them good and hard (well below the level of consumer price inflation). It’s that simple! Turn up the music. Dump in some more Jim Beam. ‘Good for everyone!’. Explosion of fakery If nothing else, you have to admit that Donald J Trump really is a stable genius. In just 31 months on the job, he has mastered the mysterious and unruly connections between central bank policy and the economy. And it was so simple. So obvious. Cut rates, economy goes up. Raise rates, economy goes down. And if prudent central bankers insist on raising rates, he will gouge them out, like an offending eye… And now, of course, blind central bankers are turning up almost everywhere. That’s what his advisor, Peter Navarro, confirmed on nationwide TV. MarketWatch: ‘I can tell you with certainty…we’re going to have a strong economy through 2020 and beyond with a bull market,” he told ABC News in an interview on Sunday morning. “The Fed will be lowering rates. The ECB will be engaging in monetary stimulus. China will be engaging in fiscal stimulus.’ Wow. Certainty! Our worries are over. All it takes, apparently, is monetary and fiscal stimulus. No second-guessing. No hesitation. No more ‘on this hand…and on the other hand’. No careful, humble, moderate, or intelligent reluctance. And we’re pretty sure that Navarro is right, at least about what the desperadoes in central banks and central governments are going to get up to. Markets and economies are hard to predict. But politicians are panes of glass. They have two major goals — re-election and larceny. The aim of the former is merely to enable the latter. And a good way to accomplish both is to stimulate the voters with fake money…fake wars…and fake news. Yes, you should expect a fulsome explosion of fakery in the months ahead — and big money flushing out into the swamp. Rough and tough Donald J Trump comes from a rough and tough world of New York hustlers. He knows that if he loses the election, his enemies will go after him. He knows, too, that he has plenty of skeletons in the closet…and that his adversaries are bound to find one of them if they get their hands on the Justice Department. So he’s going to do ‘whatever it takes’ to win in 2020. And here we return to our prediction: He will never go full retard in the trade war with China. Goldman Sachs has a new estimate that the trade war, fully implemented, will cost each US family about $1,000 a year. That is not something Mr Trump will want on his re-election resume. Instead, he will want good news. That means rates will be cut. Quantitative easing will be revived. Maybe even direct purchases of stocks too. The trade war will be won. China will not want to lose face to Mr Trump. But both China and the Trump team need to make a deal. Most likely, a glorious deal will be announced. Nothing much will change. Guns and better We can also expect more government spending…more giveaways…more payoffs…and more debt. Already, government spending under Mr Trump has increased faster than at any time since Lyndon Johnson’s ‘guns and butter’ budgets of the late ‘60s. Instead of paying off the national debt as promised, Trump has added $2.7 trillion. And look for more to come. And tax cuts? Yesterday, the White House denied that it was considering a payroll tax cut, but that too is almost sure to come back. But wait…will all this spending, inflating, and rate-cutting really make the economy healthier? Of course not. It makes it unhealthier. Will it prevent a correction on Wall Street? Nope, not even. How will this play out? Tune in tomorrow… Regards, | Bill Bonner, For The Rum Rebellion |
| ..............................Advertisement.............................. READ THIS BOOK BEFORE WE ENTER A BEAR MARKET History shows us that some kind of crash is coming. And we may have just seen the first murmuring. But how big and brutal could it be? This survival guide by Vern Gowdie makes the case for a correction of over 65%. He believes investors are going to see decades of gains blown away in a very short period. If you cannot afford to see your wealth shrink, possibly by two-thirds in value, you need to prepare for that potential snap NOW. You can’t wait. The five protection steps Vern outlines in his book will be of no use to you when this potential avalanche begins to cascade. You need to initiate these steps now. To download your copy, click here. | ..........................................................................
The Tip of the Debt-Bomb Iceberg By Harry Dent This week I wanted to bring your attention to a key development that, while overlooked by many, is likely part of the trigger that will set off the next financial crisis. All eyes were focused intently this week on US treasury yields, and a lot of people might have missed what I believe will prove to be a very big event — after the dust from the next big implosion finally settles. When the Argentine stock market and currency crashed last Monday — down 38% and 29%, respectively, in one day — it was about more than a political shakeup in the South American Republic. Not only is the Argentina situation another potential domino to fall in the wave of protectionist regimes sweeping the globe — a trend that Andy Pancholi and I correctly predicted years ago would continue apace — but it seems to be the tip of the iceberg of something colossal in scale that will bring about the next financial crisis. Developed world debt triggered the Great Financial Crisis in 2008. But then in a desperate attempt to keep the global economy afloat by flooding the world with cheap dollars and euros, central bankers set up the next disaster. I’m convinced this time it will come from the emerging world, which has racked up astronomical levels of debt thanks in large part to these policies. I have much more to say on this, including where I believe the biggest financial earthquake will come from in the not-too-distant future, and why. (It’s not Argentina.) Regards, | Harry Dent, For The Rum Rebellion |
| ..............................Advertisement.............................. In Harry S Dent’s blockbuster book Zero Hour, you’ll learn about: Dent’s ‘Trade That Could Rule the 2020s’ — and it’s NOT stocks (page 255)… The 'chaos currency' that could positively thrive during the coming financial re-set (this one will surprise you) (page 267) The absolute worst case scenario for Aussie house prices (page 201)… The one little-followed emerging economy that could soar as Western economies crumble after Zero Hour (page 272) Why you should consider betting AGAINST gold between 2020 and 2022 (page 269)… ‘When even Australian economists finally start to admit that they have a bubble, it’s probably closer still.’ (page 213) The MASSIVE silver lining for Antipodeans! Why out of the ashes of Zero Hour a new, different and specific bubble will emerge where Australia and New Zealand will be ‘clear beneficiaries’. (page 299) Click here to claim your copy now | ..........................................................................
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