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Wednesday, June 5, 2019

Trade War Woes: Will it end in recession?

Poor Man Survival

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Morgan Stanley: China Trade War Will Send US Economy Into Recession By Spring 2020

I’ve been watching recently as the colossal financial bubble we’re living in stretches closer and closer to its breaking point.

When this thing pops… soon, and very soon… it’s not only going to take down the entire stock market – it’ll absolutely crush many of your other assets, too.

“There is growing consensus that the makings of a financial crisis are building — and could drop sooner rather than later,” says former Wall Street banker Nomi Prins.

The primary culprit? To Nomi’s way of thinking: corporate debt

“Companies are holding over twice as much debt now as they did before the last financial crisis,” Nomi reports. “Corporate debt relative to GDP is at record highs, and credit standards have deteriorated.

“The amount of junk bonds and leveraged loans, or ‘risky debt,’ has risen to worrying levels.”



If the U.S. and China don’t get their acts together regarding a new trade deal, it will send the U.S. economy into a recession by next spring, according to Morgan Stanley’s chief economist.

Specifically, if U.S. President Donald Trump follows through with his threat to put 25% tariffs on another $300 billion worth of Chinese imports and Beijing retaliates, the U.S. GDP could shrink for two straight quarters in a nine-month period, Morgan Stanley’s Chetan Ahya wrote in a note to clients and published by Markets Insider.

Of course, trade fears sent markets into a tailspin for the entire month of May, with the S&P 500 dipping 6.5% in the worst May since 2010, and the Dow seeing losses for a sixth straight week, costing investors up to $7 trillion.

The global economy also is slowing, with growth in global imports of capital goods dipping 3% during the first quarter of 2019 to its lowest level in more than three years, while growth in global investment slowed 1.3% to just 3.4% total, Ahya told the Financial Times.







As indicated here Friday, the president sent markets into a tizzy when he discovered a novel use of tariffs — as a hammer over Mexico to achieve his aims on immigration.

Of course it’s old news that this tariff-humping president has a 16th-century mercantilist mindset. But using trade barriers to meet objectives that have nothing to do with trade? That’s new.

By some accounts, even his own hard-line trade representative Robert Lighthizer thought it was a bridge too far. He worries it could blow up the new-NAFTA-but-don’t-call-it-NAFTA trade deal with Mexico and Canada. Gee, ya think?

 Not hard to imagine what might come next...

  • If Germany’s level of military spending isn’t high enough for his liking, the president could impose tariffs on Volkswagens and BMWs
  • If South Korea’s peace overtures to North Korea are too ambitious for the president’s liking (or John Bolton’s), he could impose tariffs on Samsung smartphones
  • If India buys S-400 anti-aircraft missiles from Russia, he can strip India of special trade status.

Oh, wait… that last one actually happened on Friday. It just got lost in the shuffle of all the other headlines.

Back on the China trade front, “regime uncertainty” is setting in.

As we mentioned last month, regime uncertainty is a phenomenon that basically means, “Business owners have no idea what damn fool thing the government will do next” — and thus they pull in their horns, scotching plans for expansion and so on.

According to this morning’s Financial Times, the suits at several multinational tech companies are “poring through their list of suppliers to work out what they might do if a key business was hit by sanctions either from the U.S. or China.”

Most of those executives didn’t want to be cited by name — lest they become the target of presidential ire, no doubt.

Meanwhile, Beijing is preparing its own “unreliable entities list” of U.S. foreign companies after Washington put the telecom giant Huawei on a blacklist last month.

Until fairly recently, China’s state-run English-language news channel CGTN played the trade war more or less down the middle. This morning, amid our usual real-time monitoring of global news sources, we see that changing. 

Gee, the scenario we spun last year about Beijing up and deciding one day to kick Apple and General Motors out of China is looking less far-fetched now…

“At the end of the day, prices will go up on things,” says Costco’s chief financial officer Richard Galanti. “What’s interesting is that it’s hard to predict what the impact is.”

Costco delivered its quarterly earnings numbers after the close on Thursday. They were fine. But the real action came during the conference call with analysts. Executives are unsure exactly what the impact of tariffs will be… but they are sure consumers will have to eat some of the cost.

All else being equal, Costco’s customer base is more well-heeled than average. The suits are calculating those customers are willing to pay more and won’t take their business elsewhere. Then again, Walmart is making the same calculation with its own working-class customer base.

Can you say, “consumer price inflation”? And at the very moment the Fed’s preferred inflation measure is ticking up for the first time this year.

It’s as if the politicians and central bankers are conspiring to make our contrarian conjecture last week about “no imminent recession or bear market” look as foolish as possible.

Treasuries and gold, which rallied hard amid the “safety trade” on Friday, are powering still higher today.

Recall that as bond prices rally, their yields fall. Checking our screens, the 10-year Treasury note yields 2.12% — a level last seen just before Election Day 2016.

Gold, meanwhile, is the highest it’s been in over three months at $1,317. It still has a long way to go to reach February’s peak of $1,350 — much less the mid-2016 high of $1,375 — but perhaps it’s a start.

The major economic number of the day is a disappointment.

The ISM manufacturing index for May clocks in at 52.1 — less than expected and the lowest since October 2016.

A reminder that numbers above 50 indicate the factory sector is still growing, so that’s a good thing. But of the 18 sectors tracked in the survey, six are now below 50 and thus contracting. That includes apparel, primary metals and fabricated metals. Survey respondents said they’re jittery about — you guessed it — tariffs.

Signs That Now May Be a Good Time to Invest in Precious Metals:

  1. Increased antitrust scrutiny could threaten profitability of technology firms, which make up a large percentage of equities portfolios for many investors. Read more from Fox Business »
  2. The airline industry is expecting weaker profits thanks to the rising cost of fuel and weakening world trade. Read more from Fox News »
  3. The U.S. Manufacturing Index just dropped to the lowest level in nearly 10 years, based largely on weak client demand. Read more from Bloomberg »
  4. Trade tariffs will ultimately be passed on to American companies and consumers, who are expected to pay more for goods from cars to furniture to household items. Read more from Fox Business »
  5. The stock market continues on a rocky ride, as the Down drops 100 points today and the NASDAQ is now officially in correction territory. Read more from CNBC »

When the economy falters and the stock market drops, safe haven assets like gold and silver can start to surge

News You Missed

·         TSA Pockets Some Big Bucks via Loose Change

·         “Though… most people do a pretty good job of cleaning out their bins,” the website says, “enough people apparently do not that TSA currently has $3 million in loose change sitting in its piggy bank(s)” (emphasis added).

·         Once upon a time — back in 2013 — U.S. Rep. Jeff Miller (R-FL) introduced a bill called the “TSA Loose Change Act,” which would have required the agency to turn over lost-and-found change to “nonprofits that provide benefits for members of the armed forces and their families.”

A frenetic tech sell-off? Reports that the DOJ’s building an antitrust case against the tech juggernaut Google. And — this just in — against Apple, too.

·         As for Google, the Feds are zeroing in on the company’s broad-based control over its internet search engine

·         Then there’s Facebook — catching the attention of a different fed tentacle, the FTC. Their investigation centers on how Facebook handles user data and — once again — shuts down competition.

Amazon’s getting similar scrutiny from the FTC… antitrust… competition.

Yours for a more secure future,

Bruce ‘the Poor Man!’


Here are my ideas for new bill [s] to improve government


>Since term limits never seems to gain any traction perhaps we should entertain the idea of zero pay for elected officials after their third term in office…give them their office, expenses, health insurance while in office and a living allowance only=much like our Founding Fathers and see how many decide to remain in office.


>Perhaps we need to resurrect a new version of ‘war’ bonds, perhaps calling them “government bailout bonds” to help pay off our national debt and/or to help pay for our massive deficits and proposed new spending projects since fewer foreign nations are buying our debt!

>An idea I've suggested before:  Eliminate ALL city/state & Federal taxes on the 1st $25K of income for all people. 41% of citizens pay no Federal tax, many city/state taxes are killers for many. Tax laws that encourage more US manufacturing/jobs & elimination of red tape would help too.

More Updates:

Over the long term, nominal prices for stocks, commodities, crude oil, gold and silver rise. The primary driver is currency unit devaluation. That new Ford truck which cost $2,500 fifty years ago now costs $50,000. The dollar of 1913 is now a mini-dollar in purchasing power.


War with Iran at this time makes no sense whatsoever unless you look at it from a globalist perspective. The globalists are the only group that stands to gain from such catastrophe, as war with Iran would seal the fate of the US economy. The most immediate threat would be the potential shutdown of the Straight of Hormuz by Iran, which would take nothing more than sinking a few large cargo vessels along the narrow and more shallow portions of the straight, placing mine fields, or staging anti-ship missiles within striking range. The subsequent explosion in oil prices would be devastating to the global economy and the US economy would struggle under high energy prices even with expanded domestic oil drilling

It’s likely that even more American land will end up in foreign hands, especially in states with no restrictions on ownership. With the median age of U.S. farmers at 55, many face retirement with no prospect of family members willing to take over. The National Young Farmers Coalition anticipates that two-thirds of the nation’s farmland will change hands in the next few decades.

Prosperous zip codes were the top beneficiaries of the jobs recovery since the financial crisis. All zip codes saw job declines during the recession, each laying off several million jobs from 2007 to 2010. But by 2016, prosperous zip codes had 3.6 million jobs surplus over 2007 levels, which was more than the bottom 80% of distressed zip codes combined. It took five years for prosperous zip codes to replace all jobs lost from the financial crisis; meanwhile, distressed zip codes will never recover.


Free enterprise, limited government, individual freedom!


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Larry said...

This is one of those times I do not agree with Trump, but could be proven wrong...the exception is China. I understand his approach to this with Mexico as Dems have continually tied his hands domestically. Perhaps this is a way to dramatize the chaos on our southern border which Dems are using as political/obstructionist tool against the president & ultimately screwing America [what else is new].
After watching a PBS special on post-Civil War reconstruction, I see how Dems were dastardly in dealing with Blacks & how the KKK got started...they're doing the same now & their followers don't give a crap. Truly makes me wonder why Blacks support them-could it be the perpetual welfare deal LBJ created for them?

Sam said...

It's difficult to predict anything anymore but it is apparent both Wall Street & the FED show little fiscal prudence and as always, the little guy seems to get the shaft in the end.