POITOU, FRANCE – Yesterday, when the Chinese woke up and heard The Donald threatening to impose an import tax on Chinese-made goods, they practically fell out of bed.
There’s a 10% daily circuit-breaker limit in the Chinese stock market. As the name suggests, when stocks fall too far, too fast, they flip a “circuit breaker.” Trading stops to stem the losses.
By the end of the day, more than 1,000 Chinese stocks had hit it.
U.S. investors were worried, too. Our message for today: They should be.
After falling for five days in a row, the Dow slid almost 200 points yesterday. By our reckoning, the primary trend for stocks is down.
If we’re right, stocks will probably not hit January’s high – above 26,600 – again in our lifetimes. At least, not in real terms. When hyperinflation gets underway – as we expect it will in a few years – who knows what will happen.
Empire of Debt
Meanwhile, the Russians, Japanese, and Chinese are all dumping U.S. bonds. As we pointed out 10 years ago in our book, Empire of Debt (written with Addison Wiggin), the U.S. empire is funded neither by tribute, like Rome, nor by trade, like Britain. It runs on debt.
Properly adjusted for inflation, their trade surpluses (where they give us more than we take from them) have totaled nearly $20 trillion.
Much of this money has been channeled into U.S. Treasury bonds; foreigners have financed some $8 trillion worth of U.S. deficit spending over the last 20 years.
Next year, the U.S. government will have to sell some $1.2 trillion in new bonds just to cover the deficit. In years past, it could count on two sources with deep pockets and an almost insatiable appetite.
Foreigners, described above, recycled trade surpluses into U.S. debt (thereby financing the whole shebang of financialization at home and militarization abroad). And what the foreigners didn’t buy, the Fed did; currently, it holds $4.4 trillion worth of assets, mostly U.S. Treasuries.
But now, both sources of demand are drying up. Much discussed in these pages is the turnaround in Fed policy… in which America’s central bank goes from being the biggest buyer of U.S. Treasuries in the world to, effectively, the biggest seller.
Readers will recognize this, too, as a souped-up version of the Fed’s Mistake #2, in which it tightens up after being much too loose for much too long.
Now, we turn our attention to the other source – world trade. There, The Donald takes center stage.
The Russians’ selling of U.S. bonds comes in response to new U.S. sanctions imposed by Mr. Trump on their aluminum exports. In recent months, they’ve sold $49 billion worth of the American paper, nearly half their holdings.
India says it won’t be pushed around, either. Per Indian newspaper, Mint:
India has notified the WTO of a revised list of 30 U.S. imports, including apples, almonds, phosphoric acid, and [Harley-Davidson] motorcycles, on which it intends to impose retaliatory tariffs.
India is likely to introduce retaliatory tariffs worth $240 million next week on a revised list of 30 items imported from the U.S. to counter the American move to unilaterally hike duties on Indian steel and aluminium. The move comes at a time when India has decided to negotiate a “trade package” with the U.S. to ease tensions between the two sides.
And next door, Canadian smugglers are trying to dodge U.S. tariffs. That’s what the president told the National Federation of Independent Business yesterday. The Wall Street Journal reports:
“There was a story two days ago in a major newspaper talking about people living in Canada coming into the United States and smuggling things back into Canada because the tariffs are so massive,” Trump said. “The tariffs to get common items back into Canada are so high that they have to smuggle them in.”
And what does the president claim that Canadians are smuggling across the border? Shoes, of course.
“They buy shoes, then they wear them,” he explained. “They scuff them up. They make them sound old or look old.”
Oh, those devious Canadians. Now, they’re coming down here and buying our shoes! Unless something is done, Americans will soon be barefoot.
Fortunately, America is protected by our first line of defense: sharp-eared Department of Homeland Security agents stationed at the 49th parallel.
They are alert to the threat. No grandmother gets through an airport without a full-body scan… and no Canadian gets across the border with a new pair of shoes.
“Sir… you’ll have to come with me. Those shoes don’t sound old enough.”
Some will worry that the pressure of trying to punch it up with the entire world is getting to the American chief executive. Some will say that he is “losing it.” But we’ve come to see that POTUS works in mysterious ways… ways we mere mortals cannot grasp.
Tariffs imposed on Chinese goods will be paid by U.S. households; how raising prices on consumer goods will MAGA, we don’t know. But that is just one of the tricks of a consummate negotiator: doing things that don’t make sense so as to put your opponent off balance.
Or maybe, the president is just sending a signal to his main trade adversaries – the Chinese. From the Middle Kingdom, the U.S. imports more than half a trillion dollars’ worth of merchandise per year.
That’s the big wonton in America’s trade soup. Because the U.S. only exports about $130 billion to China. The difference is the single largest piece of America’s annual trade deficit.
This should be an easy win for the Great Dealmaker. With such a big imbalance in their favor, the Chinese have a lot more to lose than the U.S. The U.S. president just has to put the pressure on.
So not only did America’s head honcho threaten China with import taxes on $200 billion worth of goods, he also said that if the Chinese tried to retaliate, he’d wallop them with taxes on another $200 billion.
At the proposed rate – 10% – that is equivalent to a $40 billion tax hike on American families.
Trade is usually left to the private sector. It is no place for left jabs or widow-makers. And we doubt that Mr. Trump will have much more success with it than Misters Smoot or Hawley did before him.
But POTUS thinks he is in his element. He was cut out for the public sector all along, where every deal is backed by threats.
And now, he’s just following the script from his own ghostwritten book, The Art of the Deal. Hit. Hit back harder. Keep hitting until you win. Or until you go broke.
A word of caution: Don’t try this at home. The approach won’t work in the private sector. At home… in shops… at work – being a tough guy is a time-wasting distraction. Deals have to be win-win… or people won’t want to do them.
Try to bully people in the private sector and they’ll just take you for a jackass.
CURRENCY INSIGHT: U.S. DOLLAR ON A TEAR
By Joe Withrow, Head of Research, Bonner & Partners
The U.S. dollar has been on a tear in 2018…
Today’s chart maps the U.S. Dollar Index – which measures the dollar against a basket of foreign currencies – from January through today.
As you can see, the U.S. Dollar Index has spiked 7.4% from its February low.
That’s a big move for the dollar in a short period of time. The last time the index spiked like this was around President Trump’s election in 2016, when the index jumped 6.3% from November 4 through December 30.
But the dollar’s sharp rise might have less to do with the greenback’s renewed strength and more to do with the weakness we’re seeing in foreign currencies like the euro. Here’s how Bill Bonner Letter coauthor Dan Denning put it:
In the recent Italian elections, the anti-establishment Five-Star Movement and the League (which the popular press describes as anti-immigrant) finally got together.
Both parties have made noise about reclaiming Italy’s monetary sovereignty. In other words, either having control of their own interest rates or getting out of the euro.
They haven’t done anything formal yet. But the suggestion that Italy could leave the euro will weaken the euro. That means you’re going to see a much stronger dollar in relative terms this summer.
[…] I mention all of this because it’s not always obvious how something that happens in a politically dysfunctional country thousands of miles away can affect your investments. But it can.
Remember, a crisis always starts at the fringe and works its way back to the middle. Even the subprime mortgage crisis started with non-bank mortgage lenders before making its way back to the heart of the system.
– Joe Withrow
P.S. Dan recently told us about a new development he’s tracking. The U.S. government and financial elites around the world have been considering implementing a radical change to the money you use every day. If this change comes to America, it would mean complete government control of the money in your wallet.
And Dan believes that the next step would be the “assassination” of bitcoin and the introduction of a state-backed crypto.
If all of this sounds unbelievable, then read the full story and decide for yourself.
From Rust Belt to Robot Belt
President Trump campaigned on a promise to revitalize America’s dying steel towns. Now, the Rust Belt is seeing an economic resurgence. But it’s not from steel…
We’re Late in the Cycle. But How Late?
As Bill has written in these pages, America is in the midst of one of the longest economic expansions in history. The economic cycle is bound to turn eventually. But when? Now, a few clues.
Two Steps to Score a Hundred-Bagger
With the “primary trend” in the overall stock market likely headed lower, finding individual winners is more important than ever. Here, one of Bill’s top analysts, Chris Mayer, shows two steps to follow to return 100-to-1 on individual stocks.
In the mailbag, Bill’s recent Diary, “Trump’s Not Like Ike,” has sparked conversation…
Eisenhower was right. I worked in the Department of Defense industry for 30 years as an engineer. I went to the Pentagon many times and worked on many contracts. Our military is the most inefficient and wasteful part of the U.S. government. Most of the individuals are not obviously corrupt, but they are certainly spending U.S. taxpayer dollars for their own personal gain or promotion. You are right, its budget could be cut by 50% to 80% and we would have a stronger military. No country spends on its military like we do, and we’ve basically lost everyone since World War II. So what does Trump do? Increase its budget! Great!
– Paul L.
In early 1929, unemployment went to zero, and the ‘20s were roaring. Come late October/November, the party was over. They love to set up Republicans for a fall (i.e., Nixon, Reagan, Bush 1, and Bush 2). Eisenhower, of course, had the disastrous Korean War to choke on, but I’d take a POTUS like him any day. What I like about Trump is that he manages to accomplish something while all the powers arrayed against him are stymied.
– Eldon A.
The Eisenhower years were good. And my folks were Democrats. But they voted for Eisenhower. My mom was stay-at-home. There is no way a mill worker and his wife could live like that today. And Dad could buy a new car for cash. No need to borrow!
Your detractors don’t know how good it was then. And there is no way that Trump can ever come close to being Ike. Trump’s idea of making America great again is ensuring that the extremely wealthy like him stay that way, keeping us with troops that make people hate us all over the place, etc. Nothing good for the average guy. Your edition today, June 15, 2018, was dead-on. Keep up the good work, but don’t expect the idiots to apologize when they realize that you are/were right!
– Leo G.
You guys can’t possibly think that Trump knows who Ike was. Who are these readers who think that he’s so brilliant? I’ve followed Trump since the early ‘80s, having homes in both NYC and Atlantic City. Without going into detail, I can assure you that he is not brilliant.
– Stacy M.
Mr. Bonner, if you relied on an organization (like Congress) that spent your money for stupid programs, or never reduced budgets for departments or programs that didn’t work, you wouldn’t be in business very much longer. You would be very frustrated because of your apparent lack of control. Draining the swamp takes a lot of work and courage. I know I couldn’t do it. Could you?
– Kae K.
Hi Bill, perhaps there is a simple reason why many Trump supporters are upset with what you write. You keep on citing facts, while their predilections for Trump are based on emotions. And when facts and emotions collide, emotions almost always (or maybe always) wins. Keep writing. It is refreshing to read a well-written, informative, fact-based piece every day in the midst of all the mess. Thank you.
– Barbara L.
I think Trump is a spoiled punk who thinks only of himself. He has no interest in making America great again, rather just enriching himself and playing “doctor,” so to speak. Too bad he will kill the patient. His legacy will be the unintended consequences of his self-serving attitude towards us and other countries.
He is, though, changing the dynamics of how things are done. There is an order to how we negotiate as a country, and he is egotistically ignoring it. Will it create a better or different result? Who knows… But it’s something different.
– Rob C.
Bill, I don’t understand you. Why are you not president of U.S. Incorporated? If you think democracy is so great, you evidently did not go to the same schools I did. A damnable democracy is unfortunately what we have. It is folks like you, who gallivant all over the world – but have so much disdain for what goes on in this country, which has been stolen from us – instead of staying here and doing something about it.
– Edgar H.
Meanwhile, another reader responds to recent accusations against our editor…
Dear Mr. Bonner, I guess I’m the “reciprocal” of some of your dear readers. Whereas they think you’re a “closet liberal,” a “swamp critter,” and all the other stuff, I think you “hung the moon.” I look forward to receiving each of your emails – they always make me smile because I know you’re speaking the truth… Ever since I learned about promissory notes/Federal Reserve Notes, The Creature From Jekyll Island, and all the other BS – and realized that I really don’t have any “cards to play” in this game – all I can do is be like Kilroy and “peek over the fence” to see what’s going on.
On the day Trump was inaugurated, after he was sworn in, I’m guessing that, just like the previous POTUS-elects since FDR, he was led to a room in the White House or some other place, and all the “Deep State” folks told him about “how the cow eats the cabbage”…
Anyway, Mr. Bonner, thanks for yet another home run. All I can do is laugh and shake my head back and forth when I read your columns. Because I have no “cards to play,” there’s nothing I can do… Your columns really do provide a brief respite from, as Jackson Browne’s lyrics said in one of his songs, the daily “struggle for the legal tender.” I want you to know that this Texan looks forward to each and every column you write. Very funny, very witty – they make me smile in the midst of all the @#$%!
– Rick D.
IN CASE YOU MISSED IT…
Do you see it?
It might not look like much, but Jeff Brown, Bill’s top technology expert, believes that the image below has a clue hidden inside it. It’s a hint at the next big move for e-commerce giant, Amazon. And it has huge implications for investors. Details here.