Investors And Analysts Tire Of ‘Childish’ Trump: ‘It’s Just Too Much’

By Heisenberg

Investors and analysts aren’t particularly enamored with Donald Trump’s ongoing effort to prove something (although it’s not entirely clear what) to the world about his willingness to engage in trade brinksmanship until global equity markets take away his policy keys by plunging into an outright bear market.

Overnight, Trump of course ratcheted things up another notch by instructing the USTR to look into additional tariffs on China in connection with the 301 probe. Hilariously, Trump seemed taken aback that Beijing responded.

“Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump complained, in a Thursday night statement.

Do note that this is exactly what bullies do. They lash out at people and then when they get hit, they claim it’s “not fair”. “In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs,” he continued.

He’s probably feeling emboldened by the fact that U.S. equities shook off the China retaliation on Wednesday and have risen for three straight sessions despite getting off to their worst start to any Q2 since the Great Depression on Monday.


On imagines the President was aghast at the idea that China would target his base with their own tariffs. More specifically, his pride was likely hurt when farmers lashed out at him over the soybean boondoggle. As a reminder, this is all about politics. Trump wants to be able to point to his “tough” stance on China to bolster the GOP ahead of the midterms and as Bloomberg wrote on Wednesday, “[China’s] levies appear to be targeted at states, particularly in the Midwest, where Trump’s support is strongest, but, crucially, many of these states also have pivotal Senate and gubernatorial races in November [and] the economic blow from new tariffs could upend many of these races, potentially shifting control of statehouses and the U.S. Senate to Democrats.”

Continue reading Investors And Analysts Tire Of ‘Childish’ Trump: ‘It’s Just Too Much’

Not Your Grandfather’s Trade War: The Revenge Of Bad Money, Part 2

By David Stockman

The effect of central banking’s bad money has been to preternaturally bulk up China’s industrial economy and hollow out America’s. It’s as if some accelerated form of economic plate tectonics had broken off large chunks of the US industrial midwest and southeast and implanted them in the Pearl River Delta (Guangzhou), the Yangtze River Delta (Shanghai) and the Bohai Economic Rim (Beijing, Tianjin, Hebei).

This historically abrupt transplantation happened after 1987 because in a world of virtually unlimited central bank credit, there is no settlement process. Deformations do not get culled out on a regular basis by the mechanisms of the free market. Instead, under the tutelage of the state and its central banking branch they metastasize indefinitely until they finally hit a politically-inspired wall of resistance.

At the present world historical moment that wall of resistance is bedecked with an Orange Comb-Over. That is to say, Donald Trump’s real mission has been to crush the 30-year old toxic symbiosis under which mercantilism in China and financialization in the US functioned as two mutually reinforcing peas in a pod.

In effect, bad money caused the substitution of massive household debt and drastically inflated financial assets for the wealth and output of America’s lost industrial provinces. At the same time, and in conjunction with the militant mercantilism of China’s all-powerful post-Maoist state, it generated today’s upside-down global economic order.

We are referring, of course, to the fact that as a relatively poor, developing economy, China became the de facto $4 trillion banker to the rich, developed world. Accordingly, the 21st century to date has risibly mocked the rules of 19th century gold standard capitalism: It’s as if economically backward India had been the banker and the booming industrially advanced regions around London had been the borrower.

The absurdity of this arrangement—–China’s reckless debt-besotted Ponzi functioning as the world’s putatively solvent and sober banker and capital exporter—is lost on the Wall Street/Washington ruling classes owing to the scourge of financialization. That is, they have become so addicted to measuring economic health through the S&P 500 that they are oblivious to the vast economic deformations that bad money has wrought.

In that respect, there is a certain flavor of free market ideologues who contribute—perhaps inadvertently—to the mainstream blindness. Their argument goes that America is such a wonderful place that global capital comes beating on its door.

So if you want to enjoy the fruits of vast capital inflows you need to run large trade deficits; and presumably forever, world without end. It’s just an accounting identity!

Then again, the laws of compound arithmetic do put a damper on the theory of eternal deficits. Since the last US surplus on its international investment account in 1988 ($21 billion), the balance has plunged southward on a virtually uninterrupted basis and now stands at negative $8 trillion.

A polite word for the orange bars in the graph below is “US international indebtedness”, and it has been rising at a 21.5% annual rate for 28 years. Another 28 years at that rate and the US would owe the world $2 quadrillion, and at just one-half that rate it would still be a $150 trillion debtor by 2045.

Obviously, Stein’s Law of unsustainability (it tends to stop) would come into play long before either eventuality, but our point involves more than just arithmetic.

To wit, the US economy’s (positive) +$300 billion net investment balance with the rest of the world in 1980 (you can see it by squinting) represented about 10% of GDP. That figure was not unusual or unreasonable for what had been the world’s leading export economy and creditor nation during the previous six decades (since 1914).

But America most surely did not become rich by plunging deep into debt with the rest of the world thereafter—-such that by 2017 its net investment position amounted to (negative) -42% of GDP. What the academic free traders forget is that bad money and free trade do not play well together; the former destroys price signals and blocs market clearing adjustments.

So doing, it attempts to violate Stein’s Law. But now we know in fact, rather than just in theory, that it’s impossible.

At length, you get Donald Trump instead, and you get his half-baked advisor, Peter Navarro, on bubblevision this morning explaining that protectionism is the new route to free trade!

Continue reading at Contra Corner →

Hello, Larry

By Tim Knight

They say not to judge a book by its cover. I’m sure my mother must have told me this as a child. And yet I’ve ignored this advice all my life. I instantly judge people, sometimes based on just a glance. And I’m equipped with all the “-dars” out there – – gaydar……..jewdar…….and so on. And the amazing thing, my “-dars” have proved themselves utterly infallible. 100% track record. It’s uncanny.

So, shame on me, Mr. Judge-not-lest-you-be-judged failure, for ignoring my kindly mother’s advice. And I offer yet another judgment of someone I’ve never met, I don’t know, and I know very little about. Larry Kudlow. At a glance, I concluded this guy was a complete and utter dork.


Continue reading Hello, Larry

I Am Having a Serious Issue With Sandstorm Gold (SAND) ( This Week

By Otto Rock

How can a 43-101 compliant resource like this one for Hod Maden…

…as revealed on Friday evening by 30% owner Sandstorm Gold (SAND) (, be all-but forgotten by the market in just three days? Seriously, what’s a miner gotta do these days, announce they’ve found a lost cache of a hundred thousand Bitcoin on one of its old hard-drives?

And not just forgotten and back to neutral, SAND is actually negative for the week. This is gnat’s memory-span stuff, I mean look at that table it’s 12g AuEq at a two gram cut-off! Or in the words used to describe the numbers in The IKN Weekly on Sunday…

Continue reading I Am Having a Serious Issue With Sandstorm Gold (SAND) ( This Week

Backmasking The DJIA’s Price Pattern

By Tom McClellan

DJIA 2008-18 upside down and backwards
April 05, 2018

The stock market is continuing to display a weird backwards rerun of its own behavior 9 years ago.  I wrote about this here back on Jan. 18, 2018, in a Chart In Focus article titled, “Ending How It Began (Parabolically)?”.  That was just a week before the stock market’s blowoff top.  So it is time for a review of how things have turned out since then.

Just so you understand what this week’s chart is showing, what I have done is taken the black-line plot of the DJIA, and rotated it around the Z-axis (perpendicular to the page) in order to create the red-line plot.  Each one is showing the same thing, it’s just that the red line is upside down and backwards from the black line.  And no, I was not smoking mushrooms when I thought up this comparison.  I just happened to notice that the parabolic shape of the DJIA’s swoop up in late 2017 looked a lot like the parabolic initiation of the new bull market in 2009, but backwards, and that led me to go hunting to see how the overall pattern fits together.

Continue reading Backmasking The DJIA’s Price Pattern

Look! Egregious Inequality In America

By Heisenberg

Do you know what it’s time for? No? Well, I’ll tell you.

It’s time for Deutsche Bank’s Torsten Slok to click “update” on his charts and send you the same slide deck he sent you a few months ago. Then he’ll watch as the financial news media marvels at the same visuals they got last quarter, on the way to furiously tweeting them out with headlines like “fantastic new chart from Slok!” seemingly without remembering that they tweeted out the exact same charts like 60 days ago.

I’m just kidding. I mean, I’m not kidding, but it’s not Torsten’s fault. I mean hell, “if it ain’t broke”, right?

Cynicism aside, these decks do a decent job of summarizing some of the prevailing macro themes and on Thursday, Jamie Dimon provides a good hook for the visuals on income inequality in America.

As noted first thing this morning, Dimon’s annual letter finds the famously verbose financier expressing some consternation about growing inequality, which is more than a little ironic coming from the guy who once made fun of an analyst for being relatively poorer than him and who makes 364 times the salary of an “average” JPMorgan employee.

“Of the 150 million Americans working today, approximately 21 million earn between $7.25 an hour (the prevailing federal minimum wage) and $10.10 an hour [and] approximately 42% of American workers make less than $15 an hour,” Dimon laments, adding that “it is hard to argue that you can live on $7-$10 an hour, particularly for families (even if two are working in that household).”

Yes, that is “hard to argue.” And while Jamie does a decent job of assigning blame, he seems to be reluctant to point fingers at the obvious culprit. To wit:

It is surprising that many younger people in the United States, who are effectively going to inherit the wealthiest nation on the planet, seem to be pessimistic about capitalism.

Gee, what could possibly account for that?!

Continue reading Look! Egregious Inequality In America

Emerging Market Equities

By Callum Thomas

Emerging market equities had a dream run since the bottom in 2016 (where, if you recall, they took a pummeling as a number of EM economies went into recession, China slowed, currencies crunched, and commodities crashed).  But if you look at the long term cycles of EM vs US relative performance, it appears that EM equities may only just be getting started.

Indeed, as I highlight below, EM equities appear to go through 7-9 year cycles of outperformance, and 5-6 year cycles of underperformance.  Looking at the charts it appears as though a new cycle of outperformance may be getting underway, and if the historical experience of this phase taking 7-9 years to play out continues, this could be a really key theme for investors to be across.

Bringing in some other data points, the EM equity earnings/macro pulse has been on the positive side for the past year, and cuts in monetary policy rates at an aggregate level across emerging market economies also reinforces the case for EM equities.  Finally, the relative value picture also lines up with the observations around long-term cycles of under/out performance. Thus it presents an interesting short term and longer dynamic for the outlook.

The key takeaways on EM equities and outlook for relative performance against the S&P500 are:

-EM equities appear to go through long-term cycles of under/out performance vs US equities.

-The chart suggests that a new cycle of outperformance may be underway, and the earnings/macro/policy/valuation picture seems to support this assertion.

-Cycles of EM outperformance seem to take 7-9 years to fully play out, so this could be a key long term theme for investors.

1. Emerging Markets vs the S&P500: EM equities appear to undergo long term cycles of under/out performance against US equities. The first two up cycles in the chart below took 7 and 9 years respectively to complete, and the down cycles took 6 and 5 years respectively to complete.  So we can deduce that down cycles are more rapid and up cycles are more prolonged.  This is important context given we now appear to be in a new up cycle.

Continue reading Emerging Market Equities

Not Your Grandfather’s Trade War

By David Stockman

The Revenge Of Bad Money, Part 1

With his China Trade Wars tweet this AM, the Donald has proved once again that he has an uncanny ability to get to the heart of matters….even if by sheer accident!

Yet he’s right.The trade war was “lost many years ago” and it’s the reason Flyover America has rallied to his bluster and bombast on imports and the nefarious practices of furin guberments:

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

But, alas, the “foolish or incompetent people” skewered in the Donald’s 7:22 AM tweet are not some defunct Commerce Department or USTR officials from bygone times.

Nope, it’s not pointy-head trade bureaucrats at all. The actual culprits are the “low interest” men and women resident in the Eccles Building, who over the past three decades have transformed the Fed into a Bubble Finance machine and the main street economy into a hollowed out tower of debt.

In a manner of speaking, free money has trumped free trade. And that means what is aborning is not your grandfather’s garden variety trade war; it’s the abiding revenge of bad money—–a debilitating affliction that cannot be bargained away by cooler heads among professional trade negotiators as the dip buyers are so foolishly betting again today.

The truth is, the Red Ponzi is an absolute freak of economic nature that has laid waste to much of the US industrial economy. But the dark secret unbeknownst to the Donald, and the Wall Street/Washington establishment alike, is that the China monster was enabled, fostered and feed by the US central bank’s pursuit of an upside-down monetary policy after 1987.

The turning point came when Mr. Deng concluded that Mao had been wrong about the source of state power: Rather than emanating from the barrel of a gun, as the Great Helmsman had insisted, Deng Xiaoping ordered a 60% depreciation of the yuan, thereby recognizing the far greater efficacy of the credit power that issued from the end of the central bank’s printing press.

Then and there the die was cast. Faced with world history’s greatest mercantilist export campaign and the draining of China’s vast rice paddies of tens of millions of cheap workers to fill Mr. Deng shiny new export factories, the US economy required one thing above all: Namely, a systematic deflation of its bloated price, wage and cost structure; high interest rates to dampen consumption and encourage savings; and sustained supra-historical levels of investment in plant, equipment and technology to equip American workers with an insuperable edge in tools and labor productivity.

Needless to say, Greenspanian money-pumping, soaring debt and wealth effects driven financialization were not merely the opposite of what a regime of sound money would have generated; they were the kiss of death for jobs, prosperity and hope in Flyover America, as the chart below so dramatically illustrates.

Folks, this chart is not the fruit of Adam Smith’s unseen hand of free trade going about the work of the economic gods. China’s monthly exports to the US of just $490 million in November 1987 did not explode by 98X over the next 30 years to $48.2 billion in November 2017 owing to comparative advantage!

Indeed, the chart below would not have happened in 10,000 years under a regime of sound money and honest price discovery in the capital markets. To the contrary, China’s initial advantage in cheap labor would have led to a large inflow of reserve assets (e.g. gold) to China and a large outflow from the US, causing wage and cost inflation in China and deflation in the US.

Stated differently, when coupled with sound money, the free market is not suicidal. Instead, current account imbalances get settled via the movement of true reserve assets. That settlement process, in turn, causes domestic interest rates to fall and credit to expand in the case of  inflows, and the opposite to occur in the case of persistent trade deficits and reserve asset outflows.

At length, domestic prices, costs and wages clear at sustainable levels and current accounts remain in reasonable equilibrium among trading partners over the longer run. By contrast, the purple peak in the upper right hand of the chart below represents a 17% compound annual rate of growth for thirty years running; it’s the work of free money, not the free market.

Continue reading at Contra Corner →

Are We Hitting The Point Of Maximum Trade War Concern?

By Chris Ciovacco


Financial networks and websites are in the eyeballs and click business; not that there is anything wrong with that.  The uncertainty related to a possible trade war between the United States and China is good for attracting eyeballs and generating clicks. Therefore, some of what has been written needs to be taken with a “what business are they in” grain of salt.


Are there reasons to be concerned?  Yes

Are there reasons to believe the worst may be behind us?  Yes


A rational argument can be made that Trump’s tariffs are nothing more than a negotiating tactic to increase leverage when discussions begin with China.  China’s response to Trump’s moves have basically the same “we will not be pushed around at the negotiating table ” objective.


Continue reading Are We Hitting The Point Of Maximum Trade War Concern?


By Tim Knight

Well, that was quite the reversal. My highest profit of the day was pretty much the millisecond that the market opened. It was all downhill from there. A glance at XLB, the Materials ETF, shows that the market is having just a bit of trouble making its mind up.


The bulls had two big things in their favor. First, on the whole, the lows of 2/9 didn’t get taken out, and second, the market had come down very far, very fast, recently, leading to an oversold state. We aren’t necessarily out of this oversold state yet, since the price gap is still a fair bit north of present price levels.

Continue reading Mega-Reversal

Inflation and Castles Built on Sand

By Michael Ashton

Now that we can stop focusing on the imminent destruction of wealth in the stock market, for at least today (I am underwhelmed at the rebound on light volume), we can get back to something that matters: inflation.

The chart below shows a straight, unweighted average of core or median inflation in the US, Europe, Japan, the UK, and China. (The chart looks similar if we only include the US, Europe, and China and exclude the recent ‘outlier’ Japan and UK experiences).

We know that, in the US, measured inflation is going to be rising at least until the summer, as the one-offs from 2017 drop out of the data. The prior decline, and the current rise, obscure the underlying trend…which is for steady acceleration in prices. But it’s important to realize that this is not merely a US trend, caused supposedly by ‘tight labor markets’ or somesuch. It is a much broader phenomenon. The chart below shows four of those five countries.

Continue reading Inflation and Castles Built on Sand