A Week Makes A Difference


From Last week to this

A week ago the economy was was booming off the GDP and jobs reports. The market looked up, foreign policy looked strong, the President was standing tall and congress was investigating everything was his biggest threat.


Today it all looks different

The China deal was driving optimism in the market and then they backed out.
Up went tariffs (effective in June). The uncertainty has the world on edge.
Boom went the market, for a few days at least. Don’t buy say the experts.
Maduro didn’t go as the administration expected. Do we end up with a second Cuba in the region? A country with ties to Russia on our doorstep?
Iran shows its anger with military moves and attacks on Persian Gulf ships. The administration sends war ships to the region and is looking at plans for 120,000 troops to be deployed.
The Syrian army with Russian support is about to secure the country.
The North Koreans are angry, firing short range missiles, and today demanding their ship back that we took off the high seas.
The world looks different just a week later.

Some Thoughts

China:
They reneged on the “almost deal”. China has always negotiated and acted “for the long term”. As they state over and over, they are in deals for the long period. However, if they backed off to agreed positions, that is wrong. They can play this in hopes they harm the President and get a new one in 2020 and can go back to the deals they had, but that’s a big bet.
The risk they run is true harm to their economy in the short and long term. That is real. Let’s just review how the tariffs work:
We put a 25% tax on goods coming into out ports from China. Now remember, the goods are already purchased from China. So the importer or company bringing them in is paying the 25% charge, not China. So how does China get hurt? Three ways:
1. The price goes up in the U.S. marketplace and sales decline. The decline goes back to less orders from China.
2. The importers or purchasers of the goods find an alternative source that is less expensive than China with the 25% added on. This costs them sales and business.
3. Alternate countries manufacture the products long term and countries move out of China to them for future supplies.
So, China’s biggest risk is if they allow the tariffs long term that countries like Mexico, Japan, Brazil Vietnam and even the U.S. develop the manufacturing and they lose long term.
The President’s risk is prices rise, people turn on him and he loses reelection.
It’s a high stakes show down. Watch it closely.

What’s involved in the current and proposed tariffs?

The current tariffs (a total of $250 billion) on China have largely hit intermediate and capital goods — items typically bought by businesses, not shoppers.

That will change to now taxing nearly every product China sends to the United States. (roughly an additional $300 billion worth of goods). The United States trade representative on Monday detailed a list of what would face a tax of as much as 25 percent, which includes nearly 4,000 product categories. Included are toys, shoes, coffee makers, watches, smartphones, photocopiers, video game consoles, guns, fireworks, backgammon, Christmas decorations, practical joke toys, furs and merry-go-rounds.

How else can this be bad for China? From the WSJ:
“Escalating trade tensions have pounded the yuan, reviving questions about China’s willingness to use its currency as a tool of trade policy.
“The currency depreciated beyond 6.9 to the U.S. dollar this week in the offshore market, touching its weakest level since late December.
In recent action Tuesday, it traded around 6.89 offshore—roughly 2.3% weaker in seven sessions, as trade relations with the U.S. have soured.
“The swoon puts Beijing in a tricky spot. A weaker currency makes Chinese goods cheaper for U.S. buyers, helping offset the impact of higher tariffs. But China is eager to prevent domestic concerns about currency depreciation feeding an exodus of capital and further exchange-rate weakness. A breaching of the symbolically important level of 7 to the dollar could be a trigger.”

Foreign affairs:
This is becoming front and center and the President who has acted with bravado and from strength is now being challenged.
He came in promising change in trade agreements, less war and more focus on the key issues. Where are we?
China we outlined above. The showdown is on.
He canceled the TPP agreement and another is still being discussed.
The new agreement to replace NAFTA sits idly in congress. So all the talk of change in NA is still on hold. Is he going to get this done before the election? It’s beginning to look doubtful.
There’s no question he has some success bringing some jobs back, but as we enter an election cycle, it is questionable how much more progress can be made. He can’t cave in now, and the foreign countries want to stall hoping he loses. The Democrats don’t want to give him any victories, so we are in a dangerous spot.

Iran is angry and acting out now. The sanctions are hurting them. The President hoped they (the sanctions) would drive Iran to the negotiation table. Instead they seem to be acting more militarily today.
We don’t want another war in the middle east. We can send ships and troops, but this President is anti war. He has to show strength, but Iran is willing to call him on it.
Here’s our dilemma. Americans don’t want more war in the area. The difference between Russia’s success with Syria and our attempts in Iraq and Afghanistan  is this.
They (Russia) supported an in place leader and government. No matter how despicable he might be, he has the office and the military. In Iraq and Afghanistan we learned over throwing a government in the area leads to factional activity and endless fighting. Iran would the same.
So options are limited. The best is to get the world united with us on the boycott and have the people replace the government.

Have you noticed less noise from Nadler and congress this week on all their subpoenas and impeachment talk?
We think they looked at the polls and saw the American people were fed up with it and thought it was wrong. They saw it was hurting them and they are going to a quiet period. Still looking for anything, just less vocal.


U.S. Politics

Candidate number 22 entered the race today for the Democrats. He is Gov. Steve Bullock of Montana. He’s leaning heavily into the fact that he’s a Democrat who has won in a state Trump won by 20 points.

The Republicans meanwhile are all about “finding women and minority candidates”. The current congressional makeup of the GOP is overwhelmingly white male. Just 13 of its 197 House members are women. By contrast, 89 of the 235 House Democrats are women and nearly 90 are black or Hispanic. The candidate committees are working hard to find candidates to more balance this.

The Donald Trump Jr. subpoena. Here’s an interesting analysis from the WSJ:

At the center of the case is whether or not the House subpoena serves a “legislative purpose.” Lawyers for the Trump Organization have argued that Democrats are using the subpoena as a political weapon, while lawyers for the committee say the requests could relate to a number of pieces of potential legislation.

The question of whether or not the subpoena has a “legislative purpose” will bear on a number of other Democratic efforts. Mr. Trump and members of his administration have not complied with a number of congressional subpoenas, setting the stage for a series of court challenges between the legislative and executive branches.

Jonathan Turley, a law professor at George Washington University, said it would be difficult to show a president’s personal financial information serves a legislative purpose. A ruling in favor of the committee, he said, would license other House committees to make far-reaching requests.

“If the committee can prevail on this highly generalized claim it bodes well for the short term for these other committee demands,” he said.

A ruling against the committee, though, could endanger future Democratic oversight efforts and empower the Trump administration to continue to stonewall the House. The difficulty in obtaining information from the Trump administration has already rankled many House Democrats, and a key legal set back could cause unrest in the sometimes fractious caucus.

“If the court does not find an articulated legislative purpose, it could smack down the committee, that could be a tremendous loss for Congress,” Mr. Turley said.

Any ruling could be appealed, of course. But the ruling in this case will be an important indication of the battle of the branches to come.



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