YOUGHAL, IRELAND – We bet that Trump would never go full retard in his trade war with China.

Were we wrong?

Maybe.

Out of the Money

Last week, our no-real-trade-war bet was moving further and further out of the money. Team Trump didn’t yet go full retard, but – raising tariffs on $200 billion of Chinese imports – it was losing IQ points fast.

Our prediction was based on the guess that Trump cares more about stock prices than trade policy. A real trade war would cause the stock market to sink… we thought… and the president wasn’t fool enough to risk it.

He’s setting up the Fed to take the blame for the next sell-off. He doesn’t want fingers pointing at him.

But in the most recent tweets, it looks like tariffs were never a negotiating tactic, but an end in themselves:

Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped.

Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch!

If this were true, of course – that you could tax imports and make yourself richer and stronger – there would be many more tariffs in the world. And not just for countries. States… and even counties… would close their borders to imports.

North Dakota might want to build its own oil refineries. West Virginia could develop its own version of Silicon Valley. Imagine New York City banning movies from California to protect its own film industry. Who wouldn’t want to block outside competition if that would make you better off? If prosperity were as simple as that, everyone would do it.

Free-Trade Zone

Maybe trade should be controlled by the feds, after all. Apparently, even our readers think so. Here’s a sample from Friday’s mailbox:

We should ban all Chinese imports. We can make all that $500 billion worth of imported crap right here at home. It would be a perfectly fine arrangement. Americans would win on the deal.

Finally, if you want an end game to the trade discussions, we should demand all Chinese goods be priced at American labor rates for the labor contribution involved in their production. There is no reason to compete with Chinese labor. We have plenty of competition here at home. Tariffs should be applied at whatever level required to achieve labor price parity.

Yes, we have competition at home because, internally, the U.S. is a free-trade zone; Alabamians, for example, don’t need to ask permission to buy an avocado from California.

And people in San Francisco can still buy automobiles made in Birmingham… even though wage rates and the cost of living are substantially lower in Dixie than they are in Northern California.

Until the European Union was created, the U.S. had the largest free-trade zone in the world. Our guess is that this was a major cause of U.S. prosperity. And a further guess is that prosperity led people to, generally, favor open markets and free-ish trade, without the feds involved – because it paid.

But what happened when it stopped paying? That’s what we’re finding out now.

The average working guy has had no real raise in 45 years; open markets don’t seem to work for him. For him, it’s no longer a positive-sum game. It’s a zero-sum game… and he’s losing.

He doesn’t realize how the feds tilted the playing field against him, with their fake money and fake interest rates.

Instead, he thinks there’s something wrong with the basic win-win deal. Capitalism sucks, he thinks. Free trade is a scam, he believes. He wants the feds to do something. He wants the fixers to fix it.

But we’ll come back to this… as the week moves along; it might be important.

In the meantime…

Hell on Earth

Can we think of a country that has banned foreign imports and prospered? Many have tried. And at least one is still trying: North Korea. How does that work out for them?

Do people in Pyongyang go out to the local Walmart and buy locally made dishwashers… better than those the Chinese make?

Do they buy sparkling water… bottled locally, cheaper than the San Pellegrino imported from Italy?

Do they go out to the auto lots, turn up their noses at Mercedes, Acura, and Ford so they can buy the locally made machines?

Nope. They don’t buy much of anything because they don’t have any money. Imports are almost completely nonexistent. The shelves are almost bare; the average North Korean is barely surviving. Because the NoKo feds control trade and everything else.

Banning trade didn’t work for North Korea. Instead, it created a Hell on Earth. But how about the U.S.? Would it create an Eden here?

So, let’s go back to the basics for a minute. Real wealth is created by win-win deals between willing people. Both sides come out ahead. The feds do not create wealth. All they do is move it around, in win-lose deals. Trade is no exception. When the feds control trade, some people win. Others lose.

Donald Trump let the cat out of the bag last week:

Waivers on some products will be granted, or go to new source!

No doubt, the phone lines lit up, as companies called their lobbyists on Friday.

Consumers simply want the best product at the best price. But the politicians/cronies/insiders/Deep Staters/et al. are playing a different game.

They angle for waivers, tax credits, special deals, subsidies, payoffs – and even sanctions against their foreign competitors.

Deals will be offered. Contracts will be made. Lunches will be had. Hearings will be held. Research papers will be written. Pressure will be applied. Money will change hands.

The public will pay higher prices. A few people will get higher profits. American prosperity will decline even faster. And people will want more cheap fixes.

More to come…

Regards,

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Bill

MARKET INSIGHT: BITCOIN BREAKS OUT

By Joe Withrow, Head of Research, Bonner & Partners

Bitcoin doubled in just three months…

That’s the story of today’s chart, which tracks the world’s first cryptocurrency from January through today.

Chart

As you can see, Bitcoin shot up 110% from its February low of $3,400. With this move, Bitcoin is trading at its highest level since September 2018.

If you recall, Bitcoin soared to an all-time high of $20,000 back in December 2017. But it went on to plunge 84% from there, hitting a low of $3,195 in December 2018… Leaving many to proclaim the cryptocurrency dead.

But last month, we pointed out that bitcoin was showing signs of life after a $100 million purchase order and a spike in volume. And we suggested that the top cryptocurrencies may have a brighter future than many expect.

This month’s strong action supports our prediction. With bitcoin breaking out and volume on the rise, expect cryptocurrencies to do well this year.

– Joe Withrow

P.S. One last thing before you go…

This Wednesday at 8 p.m. ET, Jeff Brown – Bonner & Partners’ Chief Technology Analyst – is going live to reveal what he’s calling his “No. 1 tech stock for 2019.” Remember, Jeff is the analyst who recommended the best-performing S&P 500 stock of 2016 and 2018. So when he makes a bold prediction, it pays to listen. Get all the details for yourself by going right here.

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MAILBAG

As Bill mentioned, some dear readers take exception to Bill’s position on trade…

You are completely wrong about a trade war with China. That you would rely on tired, old, clearly wrong tropes about free trade is part of the problem. That stuff was never true, and no real economist has believed it since the 1960s.

First, free trade isn’t a real thing. There has never been free trade, and there never will be. In the case of the Chinese, we have currency manipulation, wage manipulation, intellectual property theft, and cyber warfare, to name only a few of the things that aren’t “free.” Which of these do you believe contributes most to “free” trade?

What your slavery to the mantra of free trade generates is what we got from American politicians for the last several decades. Winners and losers. Winners were Chinese workers who got millions of American jobs. I hope you feel good that American labor rates were undercut, but obviously, it has been devastating to American workers.

Losers were Americans to the point that we have half the country considering communism as a viable alternative. That is what your free trade brought. If you think the ability to buy a few more T-shirts or a better cell phone is recompense for the job losses, you are sadly mistaken.

In your own books, you point out that more stuff is not necessarily better. In the USA, we don’t need more stuff. The marginal utility of more stuff is near zero for 90% of Americans. And your plan isn’t providing jobs for the other 10%.

We do need better stuff. Mexican tomatoes are crap. No taste, no nutrition. If they were priced with the cost of the labor contribution equal to USA labor rates, the end result is that we would see tomato competition on quality, not price. Almost all the tomato-raising jobs would come back to America.

– Robin F.

Today’s article comes close to what I think is hitting the mark on the current problems with “capitalism.” Without going into a long explanation, which I don’t think is necessary, the problem is not with capitalism. Capitalism and socialism are merely philosophies, not systems. Adam Smith’s “invisible hand” was not describing capitalism, but the “free market.”

It is the “free market” that has been corrupted and is causing us all our problems. Capitalism is simply everyone looking out for his/her own best interest, and in so doing, motivated the individual to serve the needs of the free market, thereby getting rewarded for improving everyone’s position. However, it is the free market that works to direct capitalism.

Capitalism doesn’t need to be fixed, the free market needs to be restored and the system would fix itself. That is what Munger was referring to, even if he didn’t say it.

– Jeffrey H.

Meanwhile, one dear reader is tired of the mainstream claptrap, and thanks Bill for his story about his Irish home…

Dear Bill, I loved the story of the castle, the abbey, and the cottage. The Irish have a way about them in storytelling. Anyway, it is a nice break from the gloom and doom of the economy, politics, and Trump in fact, I have decided to simply avoid most of the claptrap being disseminated by both sides, red and blue. Tired. I am tired of the vitriol and hate and lies. Of course, that will not make them go away. It is sort of like the child who covers his ears and sings very loud to avoid hearing something he detests. So it is with me. Enough already. I wish to go about my life without being subjected to constant propaganda and lies.

Aloha. Peace.

– Tom B.

IN CASE YOU MISSED IT…

On May 22, master trader Jeff Clark will reveal the day he believes will mark the end of this bull market in stocks…

Investors caught unaware could be in serious trouble. But for a handful of traders, it could mean a serious payday.

Get the whole story from Jeff and see if you have what it takes to be one of them. Go here.

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