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  • US Policy
Dec 6, 2019

It appears that ebb and flow of the U.S.-China trade talks continues to be the issue which markets focus on, while investors largely ignore the back and forth on the potential impeachment of President Donald Trump by the House of Representatives. Impeachment seems to be a side show for markets, at least. Early in the week, President Trump mused that there may be no trade deal with China until after the 2020 election, and the market duly fell sharply. But the next day those directly involved changed the message to be more optimistic. I think it’s important for investors to remember that the President is a master showman and loves to drive daily headlines, something we know by now that he can always do on the issue of China trade. It is an obvious a positive sign that China remained at the table after the President recently signed the Congressional legislation aimed at supporting protesters in Hong Kong. However, similar legislation is moving through Congress to support ethnic Uighur Muslims in western China. Like the previous bill on Hong Kong, the new legislation has sanctions against Chinese officials but the use of sanctions is left to the President, and the Administration well understands the link between sanctions and trade. Moreover, the December 15 deadline looms as an important date with the scheduled new U.S. tariffs on Chinese consumer goods coming into effect so next week could be crucial on Phase One talks. Speaking of deadlines, another important one is the December 20 end of the current Continuing Resolution (CR) funding the federal government. Congressional sources are talking of a weekend push to try to resolve most of the outstanding issues, but funding of the President’s border wall remains a potential deal breaker. A big question is whether the headline loving President would find a Christmas government shutdown acceptable when weighted against the positive politics of fighting for funding the border wall. No one knows, perhaps not even President Trump. This coming week could tell the tale. Figure: Top Trump Tweets .@NATO has now recognized SPACE as an operational domain and the alliance is STRONGER for it. U.S. leadership ensures peace through strength and we must continue to show strength and WIN on all fronts – land, air, sea, and SPACE!— Donald J. Trump (@realDonaldTrump) December 4, 2019 The Fed should lower rates (there is almost no inflation) and loosen, making us competitive with other nations, and manufacturing will SOAR! Dollar is very strong relative to others.— Donald J. Trump (@realDonaldTrump) December 2, 2019 Manufacturers are being held back by the strong Dollar, which is being propped up by the ridiculous policies of the Federal Reserve – Which has called interest rates and quantitative tightening wrong from the first days of Jay Powell!— Donald J. Trump (@realDonaldTrump) December 2, 2019

U.S.-China Tariff, Budget Resolution Deadlines Loom
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  • US Policy
May 17, 2019

Trump's Trade Sucess- Outside China

While the focus of media and trade action in Washington, D.C., was on the escalating tensions between the Chinese government and President Donald Trump, the Administration was taking steps to find successes elsewhere. For example, the U.S. announced a postponement until at least November of its proposed tariffs on imported cars and car parts. This tariff would hit two of the US’s closest allies, Japan and Germany, and is opposed by those governments and by much of American industry. Though the China negotiations have been in the headlines, trade talks are also ongoing with both the European Union and Japan. The delay of the auto tariffs allows for these negotiations to proceed without the threat of a draconian US action. The other trade issue that saw some positive attention this past week was a meeting in Washington between the US Trade Representative and leaders in Congress to discuss revised NAFTA or, as it’s now known, USMCA, for United States, Mexico, Canada Agreement. The treaty needs Congressional approval before it can come into force, and with change in control of the House of Representatives to the Democrats from the Republicans, there have been comments from unions that labor can do better with the new leverage provided by Speaker Nancy Pelosi and House Democrats. Most observers acknowledge the revised treaty is better for the U.S. than existing NAFTA and the Administration appears willing to make accommodations on some of the assurances that Democrats and labor seek. Of course, what may really be determinative is whether or not the Democrats are willing to give Trump a victory here with the 2020 elections approaching. House Democrats passed their first major bill that included a bipartisan measure aimed at lowering generic drug pricing but combined it with Affordable Care Act (ACA) provisions. Without separating the two measures, no final healthcare bill will pass the Senate or be signed by the President. President Trump Unveils Immigration Reform Plan“America’s last major overhaul of our legal admissions policy was 54 YEARS ago. Think of that. So a major update . . . is long overdue."Posted by The White House on Thursday, May 16, 2019 China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!— Donald J. Trump (@realDonaldTrump) May 14, 2019

  • US Policy
Oct 4, 2019

Impeachment Fever, Trade Talks; DC In Full Circus Mode

Impeachment fever has taken over Washington, D.C., but the business of governing is attempting to proceed around town. The big news next week will be the arrival of a high-level Chinese trade negotiating team. Figure the market will hang on every word, sorry, make that tweet, that comes either from the President or the Chinese delegation. The latter is less adept at tweeting— so far, of course. However, the unrest in Hong Kong poses a wild card risk to the talks as it will be hard for the U.S. to stay mum if protesters there start to be hurt or killed. The Chinese are highly unlikely to help Trump with trade talks if he interferes in what they consider a domestic matter. That said, both sides have incentives to reach a mini-deal that could help President Trump secure his support in rural America with some Chinese purchases of agricultural products and the US giving needed licenses to Chinese technology giant Huawei Technologies. Talks are scheduled for next Thursday and Friday. Also on the trade front, the World Trade Organization handed down a final ruling favoring the U.S. in its complaints against the European Union over subsidies to Airbus (EADSY). The decision allows the US to place tariffs on EU imports and, surprise, surprise, the tariff-happy Trump Administration responded with over $7 billion of tariffs on EU goods ranging from clothing to cheese. The EU is expecting a similar ruling in their favor by the WTO focused on aid by state governments to help Boeing (BA). The EU has threatened to impose retaliatory tariffs on U.S. products. Both sides will start talks in the coming months to try to tamp down the tensions. And the tariff beat goes on. An interesting side story to watch in the coming weeks is whether or not the Trump Administration has any interest in working with Congressional Democrats to demonstrate that government business can be conducted during the impeachment investigation. Two areas have been the focus of some initial discussions: approval of NAFTA 2, or USMCA as it is now known, and action aimed at lowering the price of prescription drugs. Time will tell if the passion of impeachment blocks all other business. Congress and the President will need to take some action on government spending prior to the next deadline of November 19. Finally, the weak ISM data that came out this week likely points to another 25bps cut by the Fed at their end of the month meeting. For more see pages 1 and 6. Figure: Top Trump Tweets The U.S. won a $7.5 Billion award from the World Trade Organization against the European Union, who has for many years treated the USA very badly on Trade due to Tariffs, Trade Barriers, and more. This case going on for years, a nice victory!— Donald J. Trump (@realDonaldTrump) October 3, 2019 Massive sections of The Wall are being built at our Southern Border. It is going up rapidly, and built to the highest standards and specifications of the Border Patrol experts. It is actually an amazing structure! Our U.S. Military is doing a GREAT job.— Donald J. Trump (@realDonaldTrump) October 2, 2019

  • Signal from Noise
Aug 29, 2019

Soybeans Won't Cost Trump in 2020, but Auto Tariffs Might

By Vito J. Racanelli, August 29, 2019 There’s a narrative in markets—fueled by headlines—that soybean farmers could cost President Donald Trump the 2020 election. I beg to differ. He might indeed lose the election, but it won’t be the beans. In trade wars and headlines, facts sometimes get in the way of the story. A reasonable review of the agricultural and electoral data, as we’ll see below, suggests the likelihood of Trump losing a meaningful portion of the farm state vote that he won in 2016 is a low percentage bet. Simply stated, in the most important soybean states that went for Trump in 2016, they did so in such a big way that it would have to get very bad to cause a switch of allegiances.  In 2020, the reversal necessary to cost him electoral votes—remember that’s what elects presidents—is going to be a tall order for the Democratic candidate, whoever he or she is. Trump’s average margin of victory in the soybean states he won was over 20%.   It’s true that some farmers are hurting, hit by a double whammy of reduced soybean sales to China and lower commodity prices. According to the USDA, U.S. total soybean exports this year at August 1, 2019, were 42.0 million tons, down 11.3 million from the year ago period. Much of that was due to exports to China, 10.6 million tons, down from 16.9 million in the same period of 2018. (See table.)  The second whammy is price: Outside the U.S. soybean prices are down 14%. In calendar 2018, the U.S. imported a record $539.5 billion in goods from China and sent $120.3 billion there, for a trade deficit of nearly $420 billion.  That’s why Trump is seeing red.  I’m not going to discuss the U.S long term structural deficit with China nor the likely poor efficacy of tariffs and trade wars, but suffice to say I think they are bad for the U.S., bad for China, and bad for the world. I understand the frustration with China, but given that the U.S. is a democracy and China is totalitarian, it’s more likely that China can tough it out than the President be re-elected. The 2018 U.S. exports to the Middle Kingdom ($120.3 billion) were down from about $130 billion in 2017, and almost the entire difference was soybean and corn. The U.S. is a net importer from China in most market segments such as consumer electronics, apparel, furniture and industrial supplies. The one major exception: agriculture. Soybeans made up a big chunk of the U.S.’s worsening 2018 trade deficit with China. If you want a superficial assessment, it’s that soybeans will cost Trump the 2020 election. But let’s look at the big soybean states that went for Trump and by how much. (See table below.) According to a study done last year by the Federal Reserve Bank of St. Louis, the top 10 soybean producing states (2018 data) made up nearly 80% of U.S. soybean production. Trump won 8 of them by significantly large margins, and lost one, Minnesota, by a small amount. Given those “yuge” winning margins in the eight states, it would take a rather large voter U-turn there to cost him the electoral votes. Could it happen? Sure, but how likely is that?  For example, even if he lost the two states with his smallest margins of victory, Ohio and Iowa, but repeated in the other six, that would still leave Trump with 282 electoral votes. That assumes he repeated victory in all the other states he won in 2016.  It might be a narrow victory, to be sure, and other factors could still cost him. Here’s another reason why soybeans aren’t scary for Trump. Despite the pain to farmers and consumers, Americans like his tough line in general, according to a recent story by The Wall Street Journal. Top Congressional Democrats and Republicans have applauded his aggressive line and polls show mistrust of China is growing across party lines, the newspaper reported. China takes about 7%-8% of the U.S. total of exports. The US Trade Representative Office notes the other top export categories to China last year were aircraft ($18 billion), machinery ($14 billion), electrical machinery ($13 billion), optical/medical instruments ($9.8 billion), and vehicles ($9.4 billion). Aerospace is concentrated in two states, California and Washington, which are lost causes for Trump. Remember, the states that gave Trump the electoral victory were Michigan, Wisconsin and Pennsylvania, where he had a total of only about 100,000 votes more than Hilary Clinton, out of 130 million cast. He has the status of incumbent, and short of a recession—given the Democratic opponents so far don’t seem capable of appealing to voters beyond the party’s left leaning base—the 2020 electoral college vote might be closer but the numbers still favor Trump. I’m not endorsing all his policies, just looking at the data. A more plausible path of a Trump defeat next year is a loss in the toss-up states he won. For example, Michigan (16 electoral votes, $3.6 billion to China), is a big automotive state, and Wisconsin (10, $1.7 billion), has a sizeable oilseed and aerospace exports to China. Who knew? Pennsylvania (20, $2.6 billion) exports tend to be resources. An interesting study was done recently by DataTrek about where the next recession might begin. Using data from previous recessions concerning the labor markets in states with particularly cyclical economies and with lower-than-average education attainment, DataTrek concluded that one 3-state area could be the recession vector: Michigan, Ohio and Indiana. Pennsylvania and Wisconsin are right next door. My colleague and resident D.C. expert Tom Block says if he had to pick one important state it’s Ohio, sometimes overlooked as a soybean state. In recent years, no Republican has been elected without it. Where could I be wrong? The trade wars could worsen to the point that the global economic slowdown turns into a recession. Of course, there are many political and economic unknowns that could materialize between now and November 2020. Bottom Line: Short of a recession in the next six to 12 months, which isn’t my view, don’t look for soybeans to trip up Trump. 

Stocks Rocked By Trump Tweets; Down Over 2% Friday

“The market is hereby ordered to go up and STAY UP!” Did you miss that tweet by President Donald Trump on Friday after his—and the market’s—frustrations with the Federal Reserve Board’s inability to heed his demands and also with China’s hard-to-understand policy of retaliating on his trade tariffs? OK, I’m being facetious. Trump didn’t order the market to rise (I’m thinking he wishes he could), but he did say this in a tweet: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA….” Firstly, short of war Trump cannot unilaterally order companies to do that without Congressional approval, so stand down. Yet market action Friday suggests investors are likely finding his tweet tantrums tedious at this point, despite the good work he’s done loosening overbearing business retarding regulations and cutting corporate taxes. (The latter was of course marred by the fact that he didn’t recover the lost taxes elsewhere and the federal budget is busting.) There stocks were cruising along nicely during the week, with the market up over 1% by Thursday and seemingly set to break the string of three down weeks. Then came the whirlwind named Trump. Investors weren’t thrilled by a Friday speech given by Fed chair Powell, who effectively said “we’ll wait and see” about future rate cuts. (For more go to page 6.) Yet the market reaction to his mild chat was muted compared to the volatility that ensued after China announced new retaliatory tariffs and after President Trump went ballistic in his threatening tweets against both Powell and China. I think the markets, with good reason, found his tweet storm a bit unnerving. The Standard & Poor’s 500 index was down over 2% Friday and fell 1.2% on the week. Though up double-digits percent this year, it is now little changed from levels first reached in January 2018. I will note that trading volumes for the week were of the traditionally low late August sort, so I don’t see a lot of conviction here, which is a plus. Government bonds rallied after China’s finance ministry on Friday said it would impose tariffs on $75 billion of U.S. goods, in two stages. The first batch would kick in Sept. 1, with the second coming Dec. 15. Let’s talk about the yield inversion of the 10-year-two-year U.S. Treasury note spread. I’ve noted before that it isn’t a particularly reliable signal. And my colleague Tom Lee produces a good refutation of the inversion signal, beginning on page 3. But here’s a recent take on this from our friends at Cumberland Advisors: “Most pundits are using the inversion of the yield curve as a forecast of a slowdown. But as we have noted in other pieces, economic slowdowns are far from synchronous with inversions. Growth continued for a year and a half after the yield curve inverted in 2006. Looking at recent economic data, it’s pretty hard to find the slowdown: – Retail sales advanced 0.7% month-over-month in July, versus an expectation of 0.3%. – The Empire Manufacturing Index (New York survey of business conditions) advanced 4.8% versus an expectation of 2.0%. – Core CPI is 2.2 % over the trailing 12-month level – right where it was at the end of December when the 10-year bond yield stood at 2.685% and the 30-year bond yield was 3.01%. – The S&P 500 and the Dow Jones are still up double digits this year – even after this week’s turmoil. – Second-quarter non-farm productivity is at 2.3% vs. a 1.4% expectation. Cumberland goes on to say: “This does not look like an economy that is rolling over. Nor is it. This is a bond market that has been buffeted by a number of factors that are not US-related.” I don’t disagree with this trenchant analysis. Even Europe isn’t completely dead. Several eurozone purchasing managers surveys suggested the eurozone economy may have stabilized in the third quarter. The eurozone economy may have started to steady in recent weeks after the flash composite Markit purchasing managers index for the eurozone rose to 51.8 in August, from a previous reading of 51.5. Over 50 suggests expansion. The eurozone service sector PMI hit a two-month high of 53.4, up from 53.2, and the manufacturing sector PMI recovered to 47.0 from 46.3, continuing to contract but at a slower pace. With all the bad news we’ve seen, I still think this looks like market resilience. Quote of the Week: You can look for Trump tweets—too much to fit here—this week on page 11. Looking Questions? Contact Vito J. Racanelli at vito. racanelli@fsinsight. com or 212 293 7137. Or go to

  • US Policy
Aug 23, 2019

Trump Bashes China, to Meet Abe at G-7 Meeting

The main driver of markets the entire past week was the long-anticipated remarks at Jackson Hole by Federal Reserve Board chairman Jerome Powell. As has happened before, Powell disappointed many investors who expected a more dovish stance. In the event, he repeated a commitment to maintain the US economy and the Fed’s concerns about the impact of trade tariffs and tension. He gave no reason to point markets towards any September FOMC decision other than the widely anticipated 25bps cut in the Federal Funds rate. (See page 6.) Of course, President Donald Trump in his inimitable way lashed out at Powell and China. We have only space for one tweet here: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” You find more tweets on page 11, if you dare, about China. Meanwhile, Trump will join the Western leaders plus Japan at the meeting of the G7 nations in France. Anticipating the usual troubles with the mercurial American President, the host, President Emmanuel Macron, announced there would be no formal communique following the meetings. Not sure that’s a big loss for investors. Anyway, the President may finally have some competition in shouting and headline grabbing as the new British Prime Minister, Boris Johnson, joins the group for the first time. Johnson is no slouch when it comes to shooting from the lip, though it sounds better with an English accent. Escalating U.S.-China tensions might be creating an opportunity for Japan, as it seeks to conclude a bilateral trade deal with the U.S. Prime Minister Shinzo Abe is trying to secure a promise that Japan will not be included in any tariff President Trump might levy on imported cars or car parts. Bilateral negotiators appear to be close to an agreement. Importantly for President Trump, talks appear to be focused on opening Japanese markets to imports of American agricultural products; especially beef and dairy. After the blows farmers have taken from tariffs levied on agro products by China, a farm country victory for Trump would be an important step in the preparations for the 2020 election. Both Trump and Abe will be at the G7 meetings; and there’s speculation they may talk about some of the tougher outstanding trade issues. If the two can give instructions to their trade teams, a treaty might be agreed upon when the two meet again the United Nations in September. The beat goes on. Friday, China announced another round of retaliatory tariffs totaling $75 billion on American goods coming into China, with implementation divided, like the American action, between September and December. Prior to the announcement President Trump’s economic adviser Larry Kudlow announced that the U.S. and China had productive talks via phone this past week, and that the US still anticipates face to face talks in DC next month. I guess the talks weren’t productive enough. Meanwhile, the U.S. still covets Greenland. Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far….— Donald J. Trump (@realDonaldTrump) August 23, 2019 …. better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..— Donald J. Trump (@realDonaldTrump) August 23, 2019 …. your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States. Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE,….— Donald J. Trump (@realDonaldTrump) August 23, 2019 …. all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!— Donald J. Trump (@realDonaldTrump) August 23, 2019

  • US Policy
Aug 9, 2019

Trump Shoots From the Lip; China Trade Talks to Resume in Fall

With Congress currently out of session, the nation’s attention was squarely on the terrible mass shootings in El Paso, TX, and Dayton, OH. Nevertheless, markets were focused on President Donald Trump and his important decisions with respect to the ongoing trade war with China. In the previous week, the President announced a new 10% tariff on the estimated $300 billion of Chinese imports entering the US that were not already subject to the 25% tariff. He followed that up Monday by declaring China to be a currency manipulator. The combined actions shook up markets, and led to global concerns about a potentially rapidly deteriorating relationship between the two global economic superpowers. Interestingly, there are widespread media reports that both China trade actions were personally dictated by the President, and that most of his advisers opposed the moves. In fact, the President shot from the lip, as is his wont, tweeting, for example, the currency manipulator announcement prior to any formal determination by the U.S. Treasury Department. Meanwhile, Treasury Secretary Steven Mnuchin who had seen his Washington stock go up with the recent budget deal he negotiated with House Speaker Nancy Pelosi, was firmly undercut by the presidential currency tweet. He had, just hours earlier, returned from China where several days of talks ended without an agreement, but an announcement of additional talks scheduled for September. The President has often declared that he makes great decisions based on his gut, and China policy appears to be reliant on the President’s gut. There are some glints of potential movement. Treasury and White House officials stated the talks announced for September are still on, and no specific actions were announced to accompany the currency declaration. China responded to the new 10% tariff with strong actions of its own against American farmers, directing the cessation of all agricultural purchases from the U.S. The U.S. is reportedly suspending approval of export licenses for domestic companies seeking to sell to Chinese tech giant Huawei Technologies. These measures may hold the key to stepping back from the brink of an expanded trade war. A deal that includes renewed agricultural purchases by China, and approval of American sales to Huawei continues to make sense for both sides and could break the deadlock at some point in the fall. Nevertheless, investors should be ready for anything when it comes to President Trump’s tweets. Friday, for example, he poured a little cold water on the September meeting and stocks fell. (See page 1.) “We’re not ready to make a deal, but we’ll see what happens,” Mr. Trump told reporters Friday morning. “We will see whether or not China keeps our meeting in September.” Good grief. As your President, one would think that I would be thrilled with our very strong dollar. I am not! The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing,…..— Donald J. Trump (@realDonaldTrump) August 8, 2019 …. John Deere, our car companies, & others, to compete on a level playing field. With substantial Fed Cuts (there is no inflation) and no quantitative tightening, the dollar will make it possible for our companies to win against any competition. We have the greatest companies…— Donald J. Trump (@realDonaldTrump) August 8, 2019 Iran is in serious financial trouble. They want desperately to talk to the U.S., but are given mixed signals from all of those purporting to represent us, including President Macron of France….— Donald J. Trump (@realDonaldTrump) August 8, 2019

A Market Nagged by Geopolitical Concerns Rises

Pick your poison. Markets added one more nagging concern to fret over: potential military conflict in the Mideast. No, it’s not particularly original, but investors like worrisome scenarios with which they are familiar. Then there are the trade wars and the potential global slowdown, and the question of will the Fed cut rates soon or not. The market inched ahead 0.5% last week anyway. To me the Mideast is one more worry that shouldn’t be ignored but it is not particularly convincing in its bearishness. Wars have a habit of breaking out at unexpected times, but I still think it’s a low probability. What’s in it for the theoretical combatants? On Friday, in particular, equities suffered following an attack late Thursday on two oil tankers in the strategic Gulf of Oman, which is an important crude shipping channel. In quiet summer trading, such headlines seem to take more urgency. The strike heightened anxiety about conflict in the Persian Gulf. Oil and gold prices jumped The U.S. blamed Iran, which denied involvement. I’m always amazed when the market suffers from Mideast tension, as the headlines say. Sadly, it seems the Mideast was ever thus. More pessimism was engendered by a report from Morgan Stanley Friday that said its proprietary Business Conditions Index fell the most since it was created, reaching the lowest since the 2007-08 financial crisis. Hmmm. Fading—at least for now—is the ferocious rally of early June that came on the Federal Reserve’s subtle but clearly communicated potential turn away from monetary tightening. Though it has faded from the headlines, it remains still very much uppermost in investors’ minds. The Powell Put keeps support under the indexes. As noted above, behind the seesaw action last week lay free-floating anxiety about China’s economy, which evidences a slowdown, as well as the ever present threat of a worsening U.S.-China trade situation. The Standard & Poor’s 500 index finished at 2886. It briefly moved above the 2900 level but could not hold it. Friday, data released showed U.S. May retail sales rose a seasonally adjusted 0.5% from a month earlier. It suggests economy generally remains on a steady course, despite all those worries discussed above. According to Bespoke Investment Group: While it may not have looked like anything special given the weaker than expected headline reading, there actually wasn’t much not to like about May’s retail sales. In addition to being slightly better than expected after stripping out autos/gas, April’s report was revised significantly higher. Inflation remains tame, a dilemma for the Federal Reserve, but a positive development for American consumers looking to shop. Remember, there’s a switch located deep inside the Marriner S. Eccles Federal Reserve Board building, rumored to be in the chairman’s office. When it’s flipped up then rate cuts come, and stocks rally in kneejerk fashion. (For more on Fed see page 6.) I’m still of the mind that it will likely be an up and down summer (see our technical view on page 8 from Robert Sluymer) for stocks. Yes, that’s no fun, but really, look at how far the market has gone just from the December low. Separately, Uber (UBER), Lyft (LYFT) and Beyond Meat (BYND), fairly recent IPOs, will soon be added to the FTSE Russell indexes. That’s likely to attract some index and exchange traded funds buying of the shares, though for large cap Uber and Lyft stocks it might not be enough to move the needle. So far, Uber and Lyft share action has been underwhelming while Beyond Meat has been sizzling. Yields on Germany’s 10-year government bonds fell to their lowest level on record at minus 0.262%. The yield on 10-year U.S. Treasuries was flat at 2.08% from previous Friday. Yields fall as bond prices rise. Gold prices hit a 14-month high before paring back slightly, with spot gold up 0.1% at $1,341.70 a troy ounce. Bottom Line: Continued choppy action until Q3. Quote of the Week: From Powerline. com: Ten years ago, all the smartest people told us that it was impossible for us to “drill our way out” of out oil and natural gas dependency: the U.S. simply didn’t have enough oil and gas reserves. Well, ten years later where are we? The world’s largest oil and gas producer. We’re now exporting both energy commodities. As recently as 2005 the Department of Energy was still projecting that by 2020 the U.S. would need to import as much as 20 percent of its natural gas needs. So we started building LNG terminals to handle the imports. Handy that turned out to be—now they are serving as export terminals. Questions? Contact Vito J. Racanelli at vito. racanelli@fsinsight. com or 212 293 7137. Or go to

  • US Policy
May 10, 2019

Could Higher Tariffs Play into Trump's Hand?

Much to the surprise of many investors, President Donald Trump followed through on his threat to increase the 10% tariff on $200 billion of Chinese imports to a 25% tariff. So much for the art of the deal. The President is sending mixed signals as he talks about possibility of agreement but he also talks about a new program to buy agricultural products from American farmers to distribute as food aid around the world. That would require appropriating funds and another issue is that American farmers have always preferred the greater reliability of trade to aid. In the 2018 election Republican support faded in farm country, and a long term escalation in the trade war could have negative political repercussions for Trump in 2020. However, no candidate better knows how to communicate with his base than the president. The “tough on China trade” stand steals a page from the Democratic playbook. Trade, like infrastructure and prescription drug pricing, is an issue where Trump’s ideology is more in line with Democrats than free-trade Republicans. Democrats will have a tough time attacking Trump on trade policy, giving him plenty of maneuvering room. Democrats are so focused on Trump, that House legislation to strengthen the Affordable Care Act has received little attention. House Speaker Nancy Pelosi is beginning to soften her opposition to impeachment as the Administration defies nearly every Congressional inquiry for information on the Mueller Report. While some have cried “constitutional crisis,” it’s better described as a constitutional confrontation. As a young Congressional aide during Richard Nixon’s presidency I well remember the tension over whether he would hand over the Watergate tapes. The demand for the tapes went to the Supreme Court, and Nixon complied. It appears that the missing information from the Mueller Report may go through the judicial system up to the Supreme Court, where even with the Republican majority the outcome is far from clear. If the Democrats keep on the single note of Mueller they will be losing their ability to deliver on health care, infrastructure and the environment which are the issues they won on in 2018. Your all time favorite President got tired of waiting for China to help out and start buying from our FARMERS, the greatest anywhere in the World!— Donald J. Trump (@realDonaldTrump) May 10, 2019 Build your products in the United States and there are NO TARIFFS!— Donald J. Trump (@realDonaldTrump) May 10, 2019

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