YOUGHAL, IRELAND – The stock market was rattled on Tuesday, after Donald Trump threatened to raise tariffs on Chinese goods.
The Chinese replied with silly threats of their own:
“China deeply regrets that if the U.S. tariff measures are carried out, China will have to take necessary countermeasures,” said a Commerce Ministry statement.
Meanwhile, conflicting tweets and news items told us that China was either “ready to make a deal” or “planning retaliation.”
Investors were left confused. Yesterday, stocks moved little, neither up nor down.
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They Will Pay
The typical citizen, consumer, politician, or businessman doesn’t know what to make of it either. On the one hand, his president insists that he is forcing the Chinese to give us a better deal. The Donald says that “they will pay” if they don’t buckle to his demands.
On the other hand, the householder wants a cheap TV. He doesn’t care where it comes from; he just wants the most value for his money. How could the Chinese give him “a better deal”? An even cheaper TV?
But cheaper goods from China would mean an even bigger trade deficit – the opposite of what Donald Trump says he wants.
Many readers will reply that U.S. tariffs are just a negotiating tactic. But negotiating for what? For whom? A cheaper TV? Or a more expensive one? The whole trade war hype seems to make no sense, for a simple reason – it is senseless.
In the first place, there is no theory or experience to back up Trump’s claim that the Chinese will pay. The Chinese do not pay the tariffs; Americans pay them.
In the case of raw materials, such as steel and aluminum, the importing U.S. company pays the tariff, raising the cost of its raw materials. Then, the cost is necessarily passed along to the retail purchaser in the form of higher prices.
In theory, free trade – without government meddling – will always provide the most goods and services at the lowest prices. Any meddling will raise prices and hurt the meddler at least as much as, if not more than, anyone else.
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Rotten Fruit
And there’s more evidence. The idea of tariffs is to increase U.S. exports while cutting back on imports, thus reducing the trade deficit.
But since the first guns of the trade war were fired, U.S. exports to China have actually gone down by 7%, from $130 billion in 2017 to $120 billion in 2018… while imports from China have gone up from $506 billion in 2017 to $563 billion in 2018 – an increase of 11%.
In other words, it’s been a losing battle. But that only heightens the excitement as we reach further out on the limb for an answer: How come a policy that is so obviously and completely puerile and imbecilic is so popular?
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No Mistake
Many people now believe that the trade war is simply a “mistake” made by a nincompoop president and his crackpot advisors. But it is no mistake. USA Today:
On Tuesday, the U.S. Commerce Department announced the termination of the 2013 Suspension Agreement on Fresh Tomatoes from Mexico.
This means the U.S. will impose a 17.5% tariff on imported Mexican tomatoes, a move that experts say may lead to shortages and price hikes.
According to estimates from Arizona State University, consumers could pay 40% to 85% more for vine-ripe and other fresh tomatoes.
There you have it – a trade war over tomatoes. Lobbyists for growers in Florida, Texas, and California got together with politicians – notably Senator Ted Cruz – and cut a deal. “Hey… you block competition… and we’ll support your reelection campaign.”
Win-win, right? The growers benefit. The politicians benefit. Everyone comes out ahead.
Wrong.
A win-win deal is one where people get to decide for themselves whose tomatoes they will buy. They choose the best ones at the lowest prices.
But government always exploits the many for the benefit of the few. In this rotten tomato deal, a few growers make more money, some of which finds its way into the coffers of the lobbyists and politicians that made it possible.
But where does the money come from? Every penny must come from the millions of consumers who pay the higher prices forced on them by the feds.
Win-lose, in other words. The insiders, cronies, and fixers come out ahead; the public loses.
And next week, we take up the bigger and more provocative subject…
In trade wars, government spending, deficits, tax laws, economic theory, Fed policy, and foreign policy… everywhere you look, win-lose deals are gaining ground.
Why now? Accidents? Mistakes? Nope.
More to come…
Regards,
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Bill
COMMODITIES INSIGHT: A SIGN OF THE COMING COMMODITIES BULL
By Dave Forest, Editor, International Speculator
Imagine you could sit at the boardroom tables of the world’s largest mining and energy companies.
If you could listen to their industry intelligence, you’d have access to all the reports from the front lines of the commodities business around the world.
Imagine you could be privy to information on when a commodity is about to soar. You could invest ahead of the herd and make millions when a depressed sector roars back to life.
Well, you don’t need the inside intel from mining boardrooms to know when they’re coming.
You just have to watch what those big companies do.
When the world’s biggest firms believe a commodities spike is coming, they try to get positioned for maximum growth. Usually, that means they go out and buy smaller companies – which are often selling cheap after years of depressed commodities prices.
The result is a spike in mergers and acquisitions (M&A) that comes shortly before a big move higher in commodities prices.
Below is a chart my team and I compiled showing the value of all M&A transactions – and equity financings – in mining yearly since 1990. It also plots the CRB index, a benchmark for the commodities market.
Here’s the interesting thing. If you look closely, you’ll see that an uptick in money flows took place in mining during 2001 and 2002. You can see how cash coming into mining increased, even as the commodities markets, as measured by the CRB Index, were falling.
For two years, insiders stealthily increased their mining investments. Then… bang! In 2003, the CRB Index started rising and the wider investment community piled into resource stocks.
You’ll also notice that money flows peaked in 2007, just before the end of the last big commodities cycle. There was a brief resurgence in 2010, and then money flows died down as commodities entered a downturn.
Money flows stayed subdued through 2017. But last year, something intriguing happened: In 2018, total flows into the mining sector rose notably, to $183 billion.
That grabbed my attention.
But during the first few months of 2019, I’ve become even more convinced that something big is afoot in commodities, with recent events suggesting the $183 billion in money flows in 2018 will be dwarfed by money flows into mining in 2019.
That story tomorrow.
– Dave Forest
Editor’s Note: Stay up with the latest investment opportunities in commodities and resource stocks. With the Casey Daily Dispatch, you’ll hear from Dave and a host of other investing experts right in your inbox. Sign up for free by clicking here. And when you join today, you’ll receive the “Gold Investor’s Guide” absolutely free. Join here.
FEATURED READS
Here’s What Trump’s Tariff Threat Will Affect
As Bill said above, investors were left confused after President Trump threatened to raise tariffs on Chinese goods. And perhaps there’s good reason for all of this confusion surrounding Trump’s trade war… his numbers don’t seem to match the data…
“Bots” Disguised as People Are Taking Over the Internet
As companies try to drive consumers to their websites, more and more internet traffic becomes fake. Year after year, less than 60% of web traffic is human. With fake people, fake clicks, fake sites, and fake computers… at this rate, soon, the only real thing about the internet will be the ads…
A Sneak Peek of Bill’s New Book
Regular readers will recall that Bill has been hard at work on his newest book, Win-Win or Lose. He’s spent years researching and writing it. And after much anticipation, Bill’s manuscript is finally ready. But before we ship it off to the printer, we wanted to give Diary readers a sneak peek…
MAILBAG
Today, a mixed mailbag: “the Claptrappy War”… a look at Bill’s new book… and should our editor “get behind our president”?
Thanks for consistently providing entertainment with your columns and articles. Today’s “Are We Finally Beaten?” about the baloney we’re being fed daily and how we’re reacting was a real hoot. Le ne plus ultra for claptrap, indeed.
As Americans continue to invest in cheap plastic crap from vendors and throw it away or store it in their garages until the next neighborhood garage sale, a la George Carlin’s “A Place to Keep My Stuff,” the endlessly repeating cycle of just rewards for not doing the right thing as individuals just keeps on going.
Your analysis of the “Claptrappy War” and Modern Monetary Theory (MMT) is spot on as well. And anyone who believes that inflation is “subdued” is hereby invited to buy this bridge I’ve got available (for a limited time).
And finally, the three emails you’ve reproduced today from savants Bert, Ira, and Marshall about Social Security and how governments are formed were simply “icing on the cake.” I look forward to your next installment.
– Steve M.
Mr. Bonner, thank you for this new book. I’ve followed you since The Daily Reckoning days. After reading Hormegeddon, I bought and shared several copies with friends. One lesson learned is that intelligence doesn’t necessarily lead to common sense or to a thoughtful change of mind. That’s another story. Anyway, for what it’s worth, I’ll convey my impressions of the book as requested.
– Kent F.
You should get behind our president. Who has even been close to our tough-assed president since Reagan? If you would work towards the positive, you might help improve things.
Protest if you will… but if you get disrespectful with my president, I won’t have a damn thing to do with whoever you are. Dig? I don’t personally know anyone who doesn’t think like me. I worked the oil fields around Bakersfield for 40 years, and I know hundreds of people. Knocking President Trump, or any other of our presidents for that matter, doesn’t go well here!
– Ronald J.
And a few dear readers give their input on Tuesday’s Diary, “The Tragic Story of the House on the Hill…”
Wow, helluva story. Katie’s groom-to-be turned out to be her half-brother. I’d probably shoot myself in the heart, too, but not before putting a few rounds in the head of my lecherous old man.
– Kurt J.
Sounds like you should cut your losses and get out of Youghal now.
– Sherilyn A.
So, the churches are empty. And the wealthy obviously can’t take the money with them and find it useless to bring them happiness, and then it’s all meaningless as the world should be, and they commit mortal sins by suicide.
– Craig N.
IN CASE YOU MISSED IT…
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