E Trump Blinked, The Fed Blinked And The Powell Put

Trump Blinked:

Donald Trump  blinked with regard to China. Like the Fed blinked, as discussed below, Trump just bought some time before either full capitulation or a full trade war with China. 

One can wonder why Trump blinked. After all, didn't he have the advantage in future tariffs? 

Truth is, the USA has painted itself into a corner. China just has to wait that painting out. The ancient civilization has plenty of time. The joint statement issued by the Trilateral Commission really is illegal. It is backed by the USA, Japan and Europe. But that doesn't matter. 

Clearly, file industrial spying is illegal, transfers of technology between industries and China for the privilege of trading in China is not illegal. China can rope-a-dope, as is North Korea on getting rid of its nukes. The Americans can negotiate and fool the markets into thinking progress is being made, on an issue with China where it has no legal standing. But that changes nothing. 

Meanwhile, China can continue to consolidate and business know this settlement with Xi on December 1 is not permanent. Either businesses will continue to withhold investment, or they will set up supply chains without the US involvement.  

Fed Blinked:

Fed leaders have said repeatedly that they would exceed the natural rate of interest in raising of interest rates. But now the natural rate appears to be lower. Chairman Powell says that data drove this estimate of lowering of the natural rate. In the face of withering criticism from Donald Trump, the natural rate, which is an estimated rate, suddenly lowered. 

I don't think one can fault the Fed for watching the data. Wages are certainly not exploding in any meaningful way, but are a little hot, while credit spreads may be exploding. But Powell gave mixed information in the question and answer period after his speech. He said that something will come to knock down the economy. But he also said that Australia has not had a downturn for 27 years.

So, we are back to the Yellen efforts to stop a downturn. She wanted inflation to run a little hot, remember? And I think, while it has run a little hot, wage and compensation as a percentage of GDP is still a dismal chart. We do await the 2018 numbers of course:

 

U.S. Bureau of Economic Analysis, Shares of gross domestic income: Compensation of employees, paid: Wage and salary accruals: Disbursements: To persons [W270RE1A156NBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/W270RE1A156NBEA, November 29, 2018.

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Comments

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Craig Newman 1 week ago Member's comment

#Trump blinked? He literally got concessions at the cost of his own self imposed tariffs. Which was the plan. Absurd

Gary Anderson 1 week ago Author's comment

Turns out, Trump didn't get 40 percent Chinese tariffs on American cars halted. Larry Kudlow said as much. Lying, making up rules that are not required by international law, and offending every leader in the world are traits of the Tariff Guy.

Gary Anderson 1 week ago Author's comment

But he got little in the way of solid concessions. He did get a reprieve on 40 percent car tariffs. But none of this matters if China refuses to budge on intellectual property in exchange for doing business in China. And really, China is doing nothing illegal in that realm. The US must let go or say goodbye to billions of Asian customers. Steel tariffs have to go too.

Gary Anderson 1 week ago Author's comment

Norman, your point means we are reliant even more on Asia to help pull us out of the next Great Recession, but we want to destroy the life raft, or Trump does anyway. What a big dummy.

Norman Mogil 1 week ago Contributor's comment

The Fed does not have enough room to cut rates to ward off a recession. So what can it do other than jaw bone the stock market not to lose faith and start to bounce back. But it is too late since the forces pushing in the direction of recession have overtaken the Fed. In the Tyler Durden piece JP Morgan is arguing that there is a policy error in the making noe

William K. 1 week ago Member's comment

Perhaps we are like that unknown in Poe's "The Raven", " Who unmerciful disaster followed fast and followed faster", and with the fed making the wrong moves, and so much tied up in derivatives of questionable stability, things may come tumbling down. And then, hopefully, recover. I have just finally recovered mostly from the 2008 demolition party, and so I do not like real-estate derivatives.

Gary Anderson 1 week ago Author's comment

Now, the interest rate derivatives are a little safer, but there are other financial securities that are risky, and are lurking. Add to all this that debt was set up based on growth, and Trump has stopped world growth. Then add to this that the cold war crowd wants to shoot America in the foot to keep Asia from prospering, and we have a more dangerous world than in the 60s.

William K. 1 week ago Member's comment

INDEED!!!

William K. 1 week ago Member's comment

We really need for Asia to prosper, so that they will be far to busy making profit to think about making war, which is the path taken by the desperate. Too busy to fight is a much better condition.