BALTIMORE, MARYLAND – The show went on! And, as we predicted, The Donald claimed victory… and stocks went up.

When we left you on Friday, Mr. Trump was on Air Force One. He was on his way to the G20 in Buenos Aires to decide the fate of the world.

At least, that is the way the showdown with China’s head man, Xi Jinping, was advertised.

The Chinese are “ripping us off,” claimed President T. They treat us “unfairly”… they are “taking advantage” of us.

Trump believes the U.S. loses jobs and wealth to China because his predecessors made bad deals. He, the titular author of The Art of the Deal, believed he could do better; getting a better deal with the Chinese is a cornerstone of his administration.

2 + 2 = 5

This never made any sense to us – except as entertainment. As George Orwell described a dystopian future, “If the leader says an event never happened, well, it never happened. If he says 2 +2 = 5… well, 2 and 2 are 5.”

The trade war never added up. Tariffs have been coming down for at least half a century, and are now only about 2% worldwide. That’s not enough to get excited about… and has approximately zero effect on U.S. jobs.

In America’s heartland, incomes have been stagnant for 40 years. Would salaries go up if the trade deficit were erased? Not likely.

The deficit results from the fact that the U.S. exports fake money, while China makes things better and cheaper (otherwise, Americans wouldn’t buy them, and there would be no trade imbalance).

Stifling China would mean raising prices to U.S. consumers. And that wouldn’t benefit U.S. producers; instead, Walmart would look to other low-wage countries, such as Vietnam and Mexico, to stock its shelves.

As for the non-tariff barriers (NTBs), the terms of the trade war “truce” say the Trump team will worry about them later. It might as well not bother. Every country has NTBs. In the U.S., for example, the Pentagon doesn’t buy the best trucks and guns on offer. By law, it is required to “buy American”… which effectively shuts out foreign products.

But these barriers – patent rules, licensing requirements, purchasing restrictions – hurt the countries that apply them more than they hurt their competitors.

Your editor has some personal knowledge of the matter. In Argentina, he was blocked from buying land… because he is a foreigner. In another country, he could not count on copyright protections. And in several countries, he needed to bring locals into publishing deals in order to avoid running afoul of bans on foreign ownership of the press.

Did your editor go whining to his congressman, asking the feds to “do something” against the offending country? Of course not. He took his foreign challenges as he found them… some good, some bad… some profitable, some not…

Most often, where foreign NTBs got in his way, he found ways around them… or simply walked away. He didn’t make a federal case out of it.

Full Smoot-Hawley

But there is nothing that is not a federal case to this president. And he, as leader of the federales, thinks he has the right to dictate not only to U.S. companies… but to foreign countries, too. And he threatened a trade war with China if it didn’t kowtow to his demands.

Thus, was the stage set for High Noon on Saturday night. There were three possible outcomes:

The first: The Chinese would blink… caving in to The Donald’s demands. It was very unlikely. They have their own Deep State to answer to… and their own agenda… and their own pride.

More important, the Chinese have a $40 trillion debt pile. And they can only service the debt by exporting. Take away China’s $396 billion trade surplus with the U.S., and the Chinese economy would collapse.

The second possible outcome: Mr. Trump would go full Smoot-Hawley, replaying the disastrous trade war of the 1930s. That was unlikely, too.

As we have pointed out, Mr. Trump has more to lose than anyone. A trade war would drive up U.S. consumer prices… and indirectly, U.S. interest rates.

Mr. Trump’s reputation, his economy, and his own fortune depend on low interest rates. Only very low rates – negative, in real terms – can possibly keep the bubble economy inflated.

That is why he is already trying to twist Fed chief Jerome Powell’s arm to get him to back off from his tightening program. Last week, for example, during an interview with The Washington Post, he stepped up his attacks on the Fed:

They’re making a mistake. Because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me. […]

So far, I’m not even a little bit happy with my selection of Jay. Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing. […]

I disagree with the Fed. I’ve been open about that. I think the Fed is a much bigger problem than China.

Proclaim Victory

And the final possible outcome: The war would be called off; after all, it’s just showbiz.

If raising rates is such a problem, we guessed that the president would not want a real trade war. Higher import prices will quickly mean higher interest rates.

So, we predicted that President T. would proclaim victory even without any substantial concessions from the Chinese.

So what happened? This from Bloomberg:

U.S. President Donald Trump and Chinese President Xi Jinping agreed to keep their trade war from escalating with a promise to halt the imposition of new tariffs for 90 days as the world’s two largest economies negotiate a lasting agreement.

The truce between the U.S. and China emerged after a highly anticipated dinner Saturday between Trump and Xi on the sidelines of the Group of 20 summit in Argentina. The leaders agreed to pause the introduction of new tariffs and intensify their trade talks, Chinese Foreign Minister Wang Yi told reporters hours later in Buenos Aires.

Fake money. Fake interest rates. Fake employment. Fake boom.

A fake trade war.





By Joe Withrow, Head of Research, Bonner & Partners

As Bill wrote above, the U.S. and China have agreed to a ceasefire in the trade war… for now. That will likely be welcome news for investors.

According to a Merrill Lynch survey last month, most investors believe that an escalating trade war is the biggest threat to the stock market…

In its November investor sentiment survey, wealth management company Merrill Lynch asked investors what their biggest concern was heading into year-end. Today’s chart maps the results of that survey.


As you can see, 46% of investors said that their biggest concern going forward was an escalating trade war with China. Clearly, an overwhelming majority of survey participants fear a trade war more than anything else. Concerns about Italy’s political climate were in second place, at only 19%.

But as Bill reported, investors fearing a trade war received good news over the weekend – President Trump is pumping the brakes on his tariffs.

After meeting with Chinese president Xi Jinping, Trump announced a 90-day trade war truce. U.S. tariffs on $200 billion worth of Chinese goods were scheduled to jump from 10% to 25% on January 1, 2019. That move has been postponed for 90 days while the two parties negotiate solutions to ongoing disagreements on technology transfer, intellectual property, and agriculture.

As Bill has written in the past, President Trump has taken a particular interest in the continued success of the bull market in U.S. stocks. And it appears he will get his wish.

This news will likely kick off a year-end rally in stocks as investors switch back to “risk-on” mode. In fact, the Dow was up more than 500 points – nearly 2% – at one point in pre-market trading.

Joe Withrow


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In the mailbag, more talk about President Trump’s war on General Motors

As a longtime fan of GM products, it saddens me that it closed its USA plants, yet keeps pumping them [cars] out of Mexico. I’m done with GM.

– Larry H.

It seems you support thousands losing their jobs just to criticize Trump. He is trying to save jobs in America – and if that doesn’t support the interests of Big Business, perhaps they should consider their motives.

– Anonymous

I remind people, GM is not in the business of making cars; GM is in the business of making money making cars. If those plants were not showing a profit, or if demand is dropping, and these are the lowest-profit plants of those that must go, they close. It is just business. I have no right – nor does anyone else – to decide what GM does to run its business or spend its money.

I hate companies buying back their own stock, no matter how financial letters tell me I will benefit when owning them. I know this is just financial engineering. I know they borrowed at negative interest rates and bought their own stock back. I know the tax cuts that were supposed to expand manufacturing were just more stock buybacks. They could have expanded anytime they wanted to at negative interest rates, instead of buying their own stock. I remember when stock buybacks were illegal – for financial engineering and executive bonus reasons. But thanks to a little grease via campaign contributions, “money bribes for favors,” and “bribes,” are now okay.

– Bernie B.

Meanwhile, very different opinions on President Trump. Is he a “champion doing his best against a tsunami of plots?” Or does POTUS have the IQ of a houseplant?

And Bill, being merely human, cannot contain his contempt for the president, his policies, his expertise. Bill, being human, is susceptible to that relentless dissonance spewing from the liberal press disinformation campaign waged by students of the communist revolt by Lenin. And nothing can bring Bill to a respect for a champion doing his best against a tsunami of plots against him by the deeply entrenched Deep State… C’mon, Bill, wake up and lay off of him, why don’t you?

– Craig N.

Whether Trump survives or not is not yet known. This writer’s impression of him is: I’ve met houseplants with higher IQs and better manners, and that treat those who water them in a more respectful manner. These are, after all, symbiotic relationships. I base this on four personal encounters with him and countless other social functions. Those who are still waiting for benefits promised – don’t hold your collective breaths. Worse yet, he is neither a good negotiator nor a competent businessman (except on TV). Your contributor, David Stockman, got it right.

No matter what your political stripe is, relations with other countries do matter. I think whatever he does at the G20 will be based on the perception of “What’s best for me?” He is unable to think in any other context.

For those who like the Trump song, there are far better singers around who won’t drag us into the muck and mire of their deeds. Who he sleeps with is not of interest to me and one shouldn’t clog the press with those popular themes. Who he does business with on behalf of the nation is often covered. Dirty linen and the travesties go without notice – until they begin to smell so bad that all notice.

Bill, if I may, you’re too smart and your sensory perceptions are too good, not to have noticed this long ago.

– Julian C.


Did you know that the U.S. is in 55th place when it comes to this essential infrastructure?

That’s right. America has fallen behind countries like Finland and Romania. And Jeff Brown, Bill’s top technology expert, believes this could be one of the little-known motivations for Trump’s trade war. Full story here.