We’ve collected a diverse set of quotes about Kim and Trump and Xi and the region as a whole. Of course, our vantage point for this assemblage is the United States, and our view is influenced by our financial, economic, and markets perspective.
As we wrote in the four-part Thucydides series (see below), trade wars, shooting wars, and money wars are intertwined. That was so in the time of the Peloponnesian War and is just as true today.
Thucydides – series part 1: http://www.cumber.com/thucydides-part-1/.
Thucydides – series part 2: http://www.cumber.com/thucydides-part-2/.
Thucydides – series part 3: http://www.cumber.com/thucydides-part-3/.
Thucydides – series part 4: http://www.cumber.com/thucydides-part-4/
Here’s Adam Johnson in a recent Sunday morning Bullseye Brief:
“Fact is, tariffs of $50B on Chinese imports amount to one quarter of a percent of U.S. GDP. Additionally, they are dwarfed by $800B in stimulus from tax cuts, fiscal spending and offshore profit repatriation.” – Adam Johnson, June 17th (https://bullseyebrief.com/current-issue/, subscription required)
How big is North Korea’s economy? Nobody knows for sure. Here is a June 10th Bloomberg story about estimates: https://www.bloomberg.com/graphics/2018-north-korea-economy-size/.
Steve Wasserman minces no words. This is why I asked for permission to quote the following summary. Thank you, Steve, for sharing this with our readers.
“Trump pulled off a truly history-changing summit, and of course the press are attacking without knowing what is really going on. Schumer claims Trump gave all, and got zero. How stupid. They claim having the two flags next to each other is ‘disgraceful.’ What would they do, have no N Korea flag. They say granting Kim a meeting is a win for Kim and a loser for Trump, and horrible to meet with such a terrible tyrant. Recall Roosevelt sitting with Stalin, Kerry with the Iranians. If you never meet with the really bad mass murderers, you never get anything done solving the really big issues, and you end up in a war. Hard to reach agreement if you do not talk to the other guy and only Kim and Trump can make decisions, so they had to meet. We do not know what Trump said to him. Maybe he said work with me or die, or words to that effect. We may never really know. Trump is used to talking to terrible people just like himself and the Mafia from his days as a NY real estate developer. He considers it normal to be lied to, mislead, and threatened. He was an expert at it. So when he said he prepared all his life that is what he was referring to, his NY real estate experience. We do not know, nor does the press, or the Dems, what Pompeo has been working on, nor what stage the agreements are at. Pompeo has had two teams, plus more back home, working around the clock on the details. They are not sitting around drinking tea. The Dems, the press, and conventional diplomats and academics just do not want to believe Trump really did this. Of course we need to see what happens. Of course we do not trust Kim. So he said no war games for now. No big deal. These are held in the spring. Lots of time to see if Kim sticks to the deal, and easily back on if not. War games are very helpful, but the rigorous training continues as before, so no real loss to our defense posture in Korea for now. He suspended, did not cancel. He gave a maybe, which is all. They met for five hours with Pompeo, Kelly and Bolton in the meetings, so they must have talked about a lot more than what is in that public statement. We need to see where this all goes from here, but for now there is maybe a real chance for a huge change in the prospects for peace in the region, and entire changes in how the US shapes history.”
I’m not sanguine about China’s intentions. In fact, I believe China has the US at a disadvantage that is not adequately appreciated. Xi doesn’t have midterm elections; he is president for life, and he has eliminated opposition. Xi has been quoted in the Western press as being opposed to lifetime rule; he has achieved just that through his internally controlled political system. As Richard Koo of the Nomura Research Institute notes, China is not only “trying to occupy the South China Sea, but it has eliminated term limits of the presidency, imprisoned human rights lawyers, restricted the freedom of the press, and is trying to place private companies under Communist Party control.”
Meanwhile, China’s military is conducting exercises: “A division of the People’s Liberation Army Air Force (PLAAF) recently organized multiple bombers, such as the H-6K, to conduct takeoff and landing training on islands and reefs in the South China Sea in order to improve our ability to reach all territory, conduct strikes at any time and strike in all directions.” Source: NightWatch, May 20th.
China did not mention which location was used. Open-source news agencies reported it was Woody Island in the Paracels. For the location of Woody Island, see this map: http://www.southchinasea.org/files/2013/03/Sovereignty-claims_in_the_south_china_sea-US-DoD-2012.png. Note that there are now three China-built runways on the island that can accommodate fighter aircraft.
The North Korea–China nexus is not well examined, in our view. It needs lots of ventilation and transparency. That’s hard to achieve when we are dealing with regimes like China and North Korea that stifle disclosure and with regimes that continuously attack the free press (Trump’s war with “mainstream media”). In the US the division in the press is debilitating. Outlets like Bloomberg or Reuters or USA Today try to be even-handed and to practice responsible journalism. Opinions are clearly labelled as such. The range of others and their consistent biases are visible when you watch or read them side by side with the balanced ones. We frequently observe coverage of an issue both on CNN and on Fox in order to see how each of them handles it. We often compare the same reported story to the FT or WSJ or NYT versions. Internet-based sources are even more diverse and are dangerous to believe without independent verification. When it comes to the “fourth estate,” the demands on analysts are at an all-time high.
Let’s go back to China, North Korea, Trump, and US policy.
Singapore’s Straits Times reported that Kim had three planes at his disposal for the Singapore summit. Two were Boeing 747s handled by China Air, and the third was a North Korean IL-62. On his return to Pyongyang, only one of the Boeing planes flew to North Korea. The other returned to Beijing. NightWatch is one of the few sources to have followed this closely.
“It is almost inconceivable that [the Chinese Boeing 747] would have failed to carry a North Korean senior diplomat to back brief the Chinese leadership. Chinese Foreign Ministry daily press sessions implied the China was deeply involved in helping prepare Kim Jong Un for the summit.” (Straits Times)
Another important item that was not widely reported was a loan that China made to North Korea during the run-up to the Singapore summit. We have seen only one credible source (a private service) that describes it as “massive,” indicating that the loan was extended between the Communist Party of China and the Workers’ Party of North Korea. By using this technique, China can circumvent its governmental pledge to adhere to the UN-imposed sanctions.
There is also some reported restoration of the flow of goods and economic transactions between China and North Korea. China is calling that a private sector item so that it doesn’t run afoul of the UN sanctions. One reliable source indicated that the final terms of the massive loan would be implemented after the Singapore meeting. The implication is that China has a low profile but a lot of influence over the outcome of the Trump-Kim initiative.
Before we leave this region, we must comment on Japan. It is deeply involved in multi-dimensional ways in current East Asia geopolitics. For an excellent primer on Japan’s position and the political forces at work in Japan, see www.japan-insider.com. Jeff Usher’s paper entitled “Defending Japan,” dated May 13th, is a must for any serious student of the region and for any investor in the region. (What I like about Jeff is how he transfers his geopolitical analysis into actionable specific market recommendations.) In his paper Jeff includes the map of the Japanese air bases. It is important to look at this geography since Japan and the US have a multi-decade defense arrangement that allows the US to have an “unsinkable aircraft carrier” in the Pacific Ocean. With China’s expanding construction of military bases on islands and reefs, that equation is changing. Jeff notes the photo history (satellite) of the Chinese build-out of the Fiery Cross Reef. Sources include Japan’s Ministry of Defense. See: https://www.google.com/search?q=fiery+cross+reef+before+and+after .
So where does this commentary end up? Nowhere. There is no end in view, in our opinion.
When it comes to the outlook for American politics, I have to agree with Steve Wasserman’s succinct summary:
“Trump, Pelosi, Schumer just add to the turmoil with their outlandish and stupid comments and tweets. Where is Ronald Reagan when we really need him? I fear we are in for several more years of Washington turmoil and ugly partisan battles. Nobody looks good in all this.”
When it comes to markets and interest rates and the economic outlook, the North Korea threat is now temporarily muted. But only temporarily, and only muted. We must consider that to be a success. The lack of a shooting war is in itself a success. And success must always be viewed as temporary. That is what vigilance and preparedness is really about.
The China trade war and the Trump-Xi tests of relative leadership, skill, and substance remain ahead. As we view this unfolding drama through the lenses of antiquity, today it is hard to know how to apply the metaphor of the past. We wonder if the US is Athens or Sparta; the same question is true for China.
We remain with some cash reserve. We worry about central banks’ decisions and behaviors, including our Fed’s. We worry about inflation or low-flation or no-flation, depending on how you measure it. And we worry about the US labor force and its demographic and income distributional characteristics. And lastly, we worry about our nation’s great legacy of enhancing our strength by accepting immigrants, a policy that has helped us for two centuries and is now threatened by the politics mentioned above and those internally, which I personally find abhorrent.
Now to a personal appeal to readers who may want to contact their Member of the House of Representatives.
Please note that presidents Obama and Bush had in common their personal and political intolerance for seeing a child yanked away from a mother who is seeking asylum from her home country where rape and murder are prevalent. The United States has always operated on the basic principle that our nation welcomes those who seek asylum from persecution. Whenever we have temporarily lost sight of that principle, we have paid dearly for the error.
And now, when the officer yanking the child away from its parents is wearing an American uniform, following a policy dictated by our president, Donald Trump, it makes for a very sad day in America. Such a policy is abhorrent and abusive. Shame on Donald J. Trump for every weeping child’s trauma, every parent’s despair and fear. And shame on some Senators, including McConnell and Schumer, and on Members of the House, including Ryan and Pelosi, our elected women and men, who cannot find a middle ground to solve this legislative issue.
There is an attempt to bridge the divide, and there are a number of House members from both sides of the aisle who tried to force a discharge petition and get this debate to the floor of the House. I personally applaud that effort and support them. I know one of them, Representative Carlos Curbelo, a Republican from Florida, who is putting his convictions and honor ahead of his political party. His family ancestors were persecuted by Fidel Castro, and he personally knows the value of asylum from a regime that tortures people and ignores any human rights. He has many colleagues, both Democrats and Republicans. They need to be praised.
By the way, I believe a bill passed by both Senate and House would be signed by President Trump. Democrats who do not want to give Trump a victory are just as responsible for the child being yanked away from the mother as are the Republicans who are tying up the bill because of other elements on their personal political agendas.
President Donald Trump will attend a House Republican conference meeting Tuesday night at 5:30 p.m. to talk immigration. (https://www.politico.com/story/2018/06/16/trump-capitol-immigration-talks-gop-650387) Readers have 48 hours to call a Republican congressional office and let the Member know they want this issue of immigrant children raised in the meeting.
David R. Kotok
Chairman & Chief Investment Officer
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