Wall Street has a bad case of the jitters over the threat of a new trade war eruption between the US and China. It's in the nature of the markets to prematurely panic over any kind of uncertainty.
In the current case, after months of negotiations, the US-China trade talks are now down to the wire, with both sides playing psywar to get the upper hand as the most difficult issues are now unavoidably on the table. Both the US and China know that a new round of tariffs will not be helpful, and there is still time for a final deal, which would not surprise me in the least.
Liu He, the top Chinese negotiator is arriving momentarily in Washington, so China has not backed out of the talks. And top US negotiator Robert Lighthizer, a hardnosed trade law expert, is also leading the US team.
China, not surprisingly, tried to test the waters by changing the language in several of the seven chapter of the trade deal already written. Trump pushed back. Isn't that the nature of negotiations? China has always been tough in negotiations, and President Trump has his reputation as the best negotiator on the line.
The tariffs that are scheduled to increase to 25 percent at midnight tonight are actually weeks or months away from actually hitting, as it will presumably cover contracts signed as of tomorrow, for future delivery. So there is still room for negotiation, resolution, and a summit between President Trump and President Xi Jinping before the end of June.
There are no guarantees, but premature panic and equity selloffs are more an indication of the flighty nature of the markets than of the status of the final round of tough trade negotiations.
This is heretical in it’s implied refutation of Capitalist dogma that markets are driven by rational actors.
LOL. Is this really what they teach at Cornell?
In any deal the devil is always in the details and in particular on the enforcement mechanisms.
China has a track record of signing trade deals but doing what it wants in their zero-sum worldview. They have disregarded adverse WTO rulings and the US & EU have let them skate so far.
Xi believes Trump has a weak hand and decided to escalate after backtracking on points negotiated over a year regarding subsidies to Chinese companies, forced technology transfer, IP theft & currency manipulation.
https://www.wsj.com/articles/why-china-decided-to-play-hardball-in-trade-talks-11557358715
IMO, CCP is the biggest threat to the west – strategically, economically, & militarily. However, this Putin hysteria blinds Americans to the reality of the active war the CCP has engaged in for decades, with an American policy & business elite partners with them in our own destruction.
Yeah, in academia. Only in ivory towers do theories like Efficient Market Hypothesis exist. Not in the real world. Real capitalists, the risk takers with skin in the game understand the foibles of humanity.
These days I am not so sure. Could be sarcasm or socialism, but the grammar mistake stands out in either case.
The stock market was originally a mechanism whereby businesses could secure capital for startup and/or expansion. Today it is a gambling venue little different than Las Vegas, and is driven by the same impulses that drive gamblers at the roulette table.
The bulk of the volume is institutional.
Institutional managers are generally compensated by quarterly P/L’s.
When the market starts down – on bad news – it goes fast(due mainly to computerized executions and multiple trading venues) and all these managers have to get out faster to protect their positions – and their P/L’s.
Get to cash and maybe Treasuries minimize the bleeding.
We’re not talking “investors” here, we’re talking money managers.
>>>…and President Trump has his reputation as the best negotiator on the line.
How you can say this with a straight face after learning that Trump lost 1.3rd of his real-dollar net worth is beyond me–especially with ~100 million of that is just his “brand”, which has no real-dollar value, although in typical fashion Trump likes to claim it’s 8.7 billion.
Trump’s overall history as a “businessman” is a constant and mostly uninterrupted loss of money, offset by infusions by gullible investors whom he mostly just abandons to bankruptcy once he’s lit off for new climes.
Perhaps he/she/it is at the Qatar campus.
PA If you could ever have been able to force yourself to participate in capitalism you would know that making and losing money is all part of the game.
It’s also, sadly, the only retirement plan most Americans have other than Social Security.
That and various state and multi-state lotteries.
Trump was big league. Manhattan real estate, casinos, professional football, exclusive golf clubs, et al. And his losses were big league as well. And they were well publicized and he wrote a book about it. When he was on with Howard Stern decades ago he joked about his financial losses. He told Stern that when he left his creditor’s office, after finding out he was billions in debt, he was walking down the street and saw a homeless guy sleeping on a steam grate and thought to himself, “That guy is three billion dollars richer than me.”
In addition to the Russia collusion I know there has been a big narrative that Trump is actually a fraud and bad businessman. You can’t fool the NYT and WP writers but I guess Trump was able to fool billionaire business titans like Carl Icahn, Andrew Beal, et al., who spent decades in business with Trump saying Trump was a great businessman and supported his campaign.
IIRC of Trump’s 90+ real estate development projects, fewer than 7 or 8 went bust. That’s a pretty good record for a plunger. A guy who makes money for his investors 90%+ of the time is doing very well.
@Pacifica Advocate what you wrote is actually completely false and betrays, as Col Lang pointed out, your lack of any practical knowledge of how the capitalist system works. I have musical friends who think like you, with the absolute certainty of the utterly ignorant, they think Trump an agent of the Russian mafia and other such nonsense, and my approach is to reproach once and then never revisit the topic with them. Why waste time on stupid disputes when playing music together is so pleasurable?
I say the same about most political “arguments” – we’re here for a good time, not a long time.
Good for Trump. The orthodox economists worship “Free Trade”. They look for a world in which frictionless trading is finally achieved and the market functions of itself to deliver us all the benefits of maximised global trading. Look, no hands! The bureaucrats and the functionaries set to one side, all government interference with the sacred process of exchanging goods and services withering away, and the untrammeled market delivering to us the consumers the best quality at the lowest prices just like it says in the textbooks!
Setting aside the inconvenient truth that the current pattern of global trade resembles “Free Trade” about as closely as a brothel resembles a nunnery “Free Trade” is itself an ignis fatuus. The untrammeled market has no choice but to look for the cheapest labour wherever in the world it can find it and so we see the American worker, accustomed to three square meals a day and at least in the past enjoying a lifestyle the envy of the Western world, expected to compete with about as near as one can get to forced labour sleeping 20 to a hut.
But it’s OK, say the mantra economists, we in the West are cleverer and can beat them on efficiency and automation. And on sheer entreprenuerial verve and get up and go. And those who can’t hack it have only themselves to blame.
And it worked for so long! As long as the rest of the world didn’t have the wit, or the conditions, or the infrastructure right to do what we do. Well, now they can do what we do. And they can do it cheaper. Goodbye the American Dream. Goodbye too, though we’re slower at seeing it, its European counterpart. All else equal cheap labour wins.
They’ll crucify Trump, those dinosaur economists, for attempting to redress the balance. They should be complaining he’s not doing it more and faster. It does seem that time is running out.
Is it? Explain.
Wall Street shouldn’t be in jitters? And since they are as Harper suggests, they cannot be rational players?
You are correct. This is why Lighthizer has insisted that enforcement mechanisms are clearly defined as well as penalties for each separate violation. At one point, China strategy was to save toughest details for a Trump-Xi meeting, figuring Trump would make more concessions to his “friend” Xi. But then Trump walked out of the Hanoi summit with Kim Jong-un, when the North Koreans made unacceptable demands and few concessions. Suddenly, it was a danger for Xi to go all the way to Mar-a-Lago without a firm, final deal ready to sign. This has been a tough negotiation for the Chinese because for the first time, they are dealing with people who know their history and have a mastery of international trade law–ie. Lighthizer.
This is a big issue. With nearly a decade of zero interest rates, seniors and those preparing for retirement were driven into the stock market. One economist I known has done a study and concluded that $10 trillion in wealth was lost or transferred from retirees as the result of the zero interest rates, which made it impossible to invest safely and generate income. The repeal of Glass Steagall in 1999 started this whole dynamic, and it will not end until bank separation is restored, interest rates return to a normal 4-5 percent range and corporations are forced to invest their savings from tax cuts and other boondoggles on real economic activity. Tax break of $1.5 trillion has been used by big corporations for stock buy-backs, dividends and executive bonuses. Less than 10 percent spent on investment in jobs, new plants, etc.
No dispute on Trump’s business career. Manhattan real estate requires navigating between Wall Street and the Mafia. Trump had Roy Cohn and Deutsche Bank.
The media’s focus on stock market jumps is IMO laziness and a refection of the class the pundits and their bosses are in. They are millionaires and patrons of the casino.
Seems somewhat probable the Chinese will view this as a bluff and allow the tariffs to go in place. I might in their shoes. A gamble based on the prices at Walmart suddenly jumping 25% (or more) undermining Trump’s support and Trump’s position is precarious already.
The alternative? Knuckling under. Common in the business world wherein people regularly knuckle under if they can see a way to make a profit anyway. It’s a different game between nations, political leaders regularly balk at losing face.
Trump may view the situation in the same way he views negotiating with subcontractors on a construction project.
It may be that the consumer at Walmart won’t notice much price difference. If it’s like England the markup and distribution costs can account for most of what we pay.
Since ex-factory wholesale price is so much less than final cost to the consumer it could be that that tariff might tip the balance back towards home production without the consumer having to pay that much more.
Harper
You’re spot on IMO.
Ever since Greenspan the Fed has taken on a new self-imposed mandate to back stop Wall St speculation. LTCM was a key inflection point. Suppressed rates and debt monetization are consequence of this mandate. Of course there’s also this belief that Bernanke articulated that the “wealth effect” trickles down into the real economy. This has taken the central banking world by storm as the BOJ and SNB take it to extreme by buying equities. The BOJ not only owns over 40% of all JGB issued but is now the Top 10 holder of the 100 largest capitalization Japanese companies. Rate suppression has several trillion dollars of sovereign debt at negative yields which defies common sense.
The other point you make on the repeal of Glass Steagall and the enactment of the Commodities Futures Modernization Act during Clinton’s presidency led directly to the leveraged speculation that ended in the 2008 credit crisis. All of this has IMO contributed to the financialization of our economy and the growing wealth inequality. Debt-based stock buybacks, reduction in Capex growth & consequently the reduction in productivity growth all result from the perverse incentives of financialization.
The central banks are now trapped. They have to now support this leveraged speculative edifice with even more monetization at a scale that will have to be gargantuan relative to the unprecedented levels of 2008.
AOC has a solution. Print. Looks remarkably like the old solution, but more appealing.
See you at the clearance sale. Not that we’re going to enjoy being sold off cheap.
EO,
There’s nothing new under the sun in economics, except the packaging. New theories and sophistry to sell the same old snake oil. Terms like QE and LSAP get thrown around for the same thing. From Weimar to Zimbabwe fiat ultimately returns to its intrinsic value.
Trillions were printed to “save” creditors and shareholders and the all important management of banks and other financial institutions when their leveraged speculations went awry in 2008. Socialism for Wall St losses is so necessary but socialism for better infrastructure or mental health care for the homeless is so anti-capitalist says Davos Man and his bought & paid for political class. Since we’re gonna print money in any case at least let there be some gain in fixed up roads and transit systems rather than another yacht for the crony capitalist.