Morning Market Thoughts

Good morning. I trust you had a wonderful 3 day weekend. [Random thought: Psychologically, I think we get to skip Tuesday, not Monday. During three-day weekends, I always feel like I have 2 consecutive Sundays. That makes today Monday in my world. But tomorrow is Wednesday, right? So, in my world, we magically move from Monday to Wednesday.]

The futures are down on news that the US/China trade issues are…wait for it…wait for it…here it comes….

…NOT resolving!!!

Who knew? What a shock to the markets!

Seriously, I’ve said this before and I’l repeat myself. This is not going to get resolved until after the 2020 election…and quite possibly not for quite some time after that. We do have an economic and a national security issue with China, and it began more than two decades ago. We’re just now facing the issue directly.

Regarding economics, China was given “most favored nation” status in the 1990’s under Bill Clinton. “This is a good deal….”

China was admitted into the World Trade Organization (“WTO”) in December 2001 by the Bush Administration. Here are some excepts from George Bush’s May 2000 speech during the runup to the 2000 presidential election wherein he advocated allowing China to enter the WTO:

“The stakes are high, on all sides. For businesses, workers and farmers across our country, it will mean much lower trade barriers and enormous opportunities for U.S. exports. For the people of East Asia, it will affect their relations with the region’s major power. For the people of China, it holds out the hope of more open contact with the world of freedom. In short, this will be among the most serious decisions our government will make this year.”

“There are three compelling reasons to support this agreement (granting admission to the WTO) — freedom, security and economics.

“First, trade with China will promote freedom. Freedom is not easily contained. Once a measure of economic freedom is permitted, a measure of political freedom will follow. China today is not a free society. At home, toward its own people, it can be ruthless. Abroad, toward its neighbors, it can be reckless.”

“Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy. There are no guarantees, but there are good examples, from Chile to Taiwan. Trade freely with China, and time is on our side. . . . Simply put: China is most free where it is most in contact with the world economy.”

“Second, trade with China serves our own national interest, as well as the security interests of China’s neighbors. China is not our ”strategic partner.” But neither is it our enemy.”

“As I’ve said before, China is a competitor, to be faced without ill will and without illusions. When I am president, China will have no doubts about our power and purpose in the region, about our strong commitment to democratic allies throughout Asia.”

“Third, trade with China serves the economic interests of America. . . .

The doors will open to providers of U.S. services — the import-export trade, banking, insurance, telecommunications, accounting, computers, motion pictures and more. China will also adhere to W.T.O. rules on intellectual property rights and investments.”

If you read the above excerpts carefully, and have even a cursory knowledge of history and the current state of economic activity between China and everyone else, then you know that, in essence, none of this stuff ever happened. China adheres to virtually none of the WTO rules. China steals intellectual property and manipulates its currency to keep the balance of exports in their favor. Their cheap labor has resulted in obliteration of our manufacturing industry. Why manufacture things domestically if you can save money by importing from China?

Allowing China into the WTO (and even granting it Most Favored Nation status) was akin to letting the camel get its nose under the tent….or letting the fox into the hen house under the condition that it play nice with the hens.

And the idea that a more robust economy in China would profoundly alter its political structure from Communism to a more democratic system was just felony stupid. As we have seen throughout the generations both domestically and abroad, there is a status quo that favors the powerful. And the powerful are going to do all they can to protect that status quo. The elite actually don’t give a rip about you and me…they just want to remain in power and they’ll say whatever they need to say and do whatever they need to do to maintain and indeed expand that power. You are seeing it here domestically every single day and over in Europe where those who benefit from the EU are doing everything possible to frustrate the vote of the people in the UK. Simply put, if you are in power and are benefiting from the way things are, why would you ever want to see it change?

The ruling class in China has every incentive to maintain control over the population. The ruling class has no upside in promoting more democracy. Communism benefits them. That’s why they’re communists. If you don’t believe me, there’s something wrong with you (or you’re President Xi’s nephew). This is just logic based on real facts. It’s not my opinion. China has been doing business via MFN status and membership into the WTO for 20 years. What’s changed? Well, they’ve gotten more powerful, provocative and belligerent. And do you think that’s gonna change because of a trade war? What planet are you living on? They’ll talk nice and try to massage public perception…but they’re going to simply wait President Trump out. And they’ll wait him out for another year…or another 5 years. One year would be preferable to China; but 5 years is also OK. It beats having to adhere to the same rules that other nations adhere to.

If China ever stops doing what it is doing, then the status quo in China will be upended. And since those in government are benefiting, what incentive do they have to change? For crying out loud, they still send dissident citizens to “re-education camps.”

So it boils down to this: Expect the expected. Whenever you see news that China and the US are reaching a trade agreement that’s good for us, don’t believe it. It’s BS in 140 characters. Watch the markets for reaction, of course. But do not put your faith in any prolonged change in whatever condition might exist at the time.

If the market is strong, it’s not because of the tariffs. If the market is weak, it’s weak. Who really knows why? The media will always seek to attribute market moves to something. But just look at the market. The media is clueless. Respect trends…and don’t predict that a downtrend will be reversed by a strategic tweet from POTUS. It’s just not gonna happen.

Now, at some point, I’ll be proven wrong. But I’ll probably be retired by then…and I don’t plan on retiring for quite a while.

See you in the forum.


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