Yahoo Finance Highlight: David Kotok on why washing machines are an important reference point in the trade war

Yahoo Finance Highlight: David Kotok on why washing machines are an important reference point in the trade war

 

Yahoo Finance - David Kotok discusses trade war

Watch the embedded video from Twitter & Yahoo Finance below.

 


 

 


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Cumberland Advisors Market Commentary – Katie Darden and Camp Kotok

Katie Darden, Financial Institutions Research Director at S&P Global Market Intelligence, joined us at Camp Kotok and then published this excellent summary of our discussions: “At Camp Kotok, fears over China and ‘magic money tree’ overshadow Fed policy,” https://platform.mi.spglobal.com/web/client?auth=inherit#news/article?id=53593818&cdid=A-53593818-12580 .

Leen's Lodge Back Deck

Then Katie joined her bank analyst colleague Nathan Stovall, who authors StreetTalk, a monthly column and blog focused on banking in the South, in a podcast interview in which Nathan first asked Katie to explain the “unique beast” that is Camp Kotok. Katie conjured with this image, which I find both amusing and fitting: “If you can imagine a large group of very smart adults at summer camp, that may come closer to conveying what it is.”

Katie goes on to say that in the ambience of Leen’s Lodge and the Great North Woods, with everyone suited up to go fishing, something magical occurs as professional egos fall away and a camaraderie develops that lets people openly engage on often contentious topics in a way that is often difficult in the outside, workaday world. (She notes that it doesn’t hurt that wifi in Grand Lake Stream can be spotty.)

Fishing Guides & Canoes

With everyone on the same level, says Katie, “You can barge into any conversation that you want, take part in any conversation that you want. I’ve gone to this every year since 2014, and every year I come away feeling that I’ve had this incredible experience that lifts me above the day-to-day, and I’ve gained new insights….”

Then Katie and Nathan launch into the major topics that had our group’s attention this year: China, Fed policy, Modern Monetary Theory, etc. We encourage our readers to check out this entertaining and informative summation of Camp Kotok 2019. Here is a link to the podcast on SoundCloud: https://soundcloud.com/street-talk_spglobal/ep-49 . And here is the link on Apple Podcasts: https://podcasts.apple.com/us/podcast/street-talk/id1277129317 .

We thank Katie Darden and Nathan Stovall for creating this insightful look at our Maine gathering.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


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Cumberland Advisors Market Commentary – The Bond Conundrum and How to Manage

The past couple of weeks have been breathtaking for bond investors and observers of the bond market. The yield on the 30-year Treasury bond is now at a record low – it dipped under 2% this week – and the 10-year Treasury is not far off its record low of 1.36% set in July 2016 – the yield now sits at 1.53%. With a little more than two weeks gone in August, we have seen the 10-year drop 47 basis points and the 30-year 53 basis points. This is more movement in two weeks than we sometimes see in six months.

 

There are many crosscurrents here. 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.

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.

Europe is mired in negative interest rates. The wisdom of having negative interest is strongly debated. One thing that is pretty clear to us is that negative rates have not helped the European banking system, and negative rates here do not help US banks, either – witness how poorly financials have done since the Federal Reserve changed its tune towards the end of last year.

The slowdown in China has pushed the yuan lower, and China’s growth rate has dropped. This has contributed to the rush into Treasuries. But we think there may be more playing out here, and it is symbolized by the protests in Hong Kong in recent weeks. Coming on top of the slowdown in Mainland China, the protests may herald the beginning of new freedom movements that the Chinese government will struggle to contend with.

How to manage bond assets
We continue to manage Cumberland total-return bond assets in a barbell method, accenting both shorter-term securities for liquidity and longer-term bonds to lock in yields, with what have been non-Treasury securities in the taxable world and longer tax-free bonds in munis. Indeed, with the fast rush down in Treasury yields, longer-dated munis, though at historical lows, offer value when you can get 3% higher grade in a world where long Treasuries are at 2%. We will take our chances with 160% yield ratios, knowing that defensiveness is built into the cheapness. The front end of the muni curve is VERY expensive relative to Treasuries, so even with a barbell and very low nominal yields, it’s been prudent to have exposure to the longer end of the market.The barbell strategy works less well when the Fed is at the end of a hiking cycle. We don’t believe the Fed is done yet: This is a pause in the Fed’s addressing the US economy. For all the change in talk from the Fed’s being on autopilot to now being data-dependent, the Fed has raised the fed funds target by 25 basis points in December and lowered it by 25 basis points last meeting; so from a fed funds target standpoint we are where we were last fall.

 

Equity markets are decently higher, and our economy continues to improve, yet the bond market has seen yields come down dramatically, in a manner that doesn’t square with US data but is more sympathetic towards the slower growth in Europe and China.

The trade war and concerns about slow growth notwithstanding, the US economy continues to do well. Our thoughts are that this race to the bottom in yields will slowly give way to a recognition that the US economy is on firm ground; the force of higher wages will push inflation higher; and the Fed will resume – albeit slowly – addressing the US economy. This is why Chairman Powell gave the markets a rate cut of only 25 bps last meeting though the markets were clamoring for 50.

Bond market yields here are high versus those in Europe, and that will keep a lid on things for a while. But the rush down has been overdone, in our opinion. My colleague David Kotok often likes to quote Herbert Stein, former chairman of the Council of Economic Advisers under Presidents Nixon and Ford. Stein’s commonsense “law” was that “If something cannot go on forever, it will stop.” We feel that’s true with long bond yields. The ride down in yields has helped portfolios. But backups can hurt, which is why we continue to get more defensive at the margin. The barbell is still in place.

John R. Mousseau, CFA
President, Chief Executive Officer & Director of Fixed Income
Email | Bio


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Cumberland Advisors Market Commentary – Report from Leen’s Lodge (Camp Kotok)

The 50-person gathering at Leen’s Lodge encompassed diverse political views, financial and economic specialties, and asset class focused from cannabis to currency trading, real estate to debt of all types, stock markets and ETFs, derivatives and futures, and more. Over $1 trillion in managed assets were represented as we gathered for each informal meal. No lectern, no PowerPoint. The China Panel and the MMT panel are public and in the social media domain and the press and public are free to use the video footage and quote the speakers. Other discussions were conducted under the Chatham House Rule.


There are some takeaways:

1. Regardless of the attendees’ political views, Peter Navarro’s advice to Trump is seen as a disaster. In a poll, 1 supported Navarro, 3 weren’t sure, and 36 disapproved. When asked more generally about Trump’s trade war policy, the group was divided, with about 3 opposed to Trump for each supporter.

2. The damage incurred by Navarro’s advice and Trump’s policy was cataloged in detail, and it is ugly. It is spreading and appearing in more and more evidence and anecdotes.

3. Border and immigration policies were discussed in detail and with data. The group’s outlook is bleak. Nearly all fault a dysfunctional Congress for its repeated failures. Here the group leaps over partisanship. Democrats and Republicans are guilty.

4. Global debt expansion and central bank credibility is a major concern. I refer readers to the MMT panel for a clear, multidimensional discussion of MMT and the Fed’s dilemma: Camp Kotok MMT panel. My personal takeaway is that the Fed needs to step up its game with regard to its communications strategy. Most agreed that putting a name with each dot in the dot plot would be an easy improvement to make. If the Fed had a clear policy statement against negative interest rates, that assurance would help to reduce risk premia. The gathering views negative rates as a spreading financial malignancy. The varied forecasts about proliferating negative rates and their global effects are sobering.  Kotok note: adjusted for most recent inflation reports, the US treasury yield curve is already negative when computing real yields.

5. The China panel packed an extraordinary amount of valuable information into a half hour and is well worth the time you’ll spend to view it: https://youtu.be/Sff0AGPrIJQ


 

This 2019 Camp Kotok talk session features panelists Michael Drury (Chief Economist for McVean Trading & Investments, LLC.), Jonathan D. T. Ward (Founder of Atlas Organization), & Leland Miller (CEO China Beige Book), all offering their take on U.S.-China relations. The panel and audience Q&A are guided by moderator, Lisa McIntire Shaw.

Beyond the direct China-US trade war, attendees discussed contagion risk, Hong Kong, Argentina, capital flight, and alternative choices for storing value in a world of discredited fiat money, among other issues. Most attendees expressed gratitude for an assembly that allowed for free and open exchanges under the Chatham House Rule.

Here are three questions for readers to consider:

1. How would you restructure your investment portfolio if you really believed that the global high-grade sovereign debt nominal yield would average 1% or lower for many years?  That implies real yields would be negative worldwide for a prolonged period.

2. How would you restructure your investment portfolio if you believed that high-grade federal, state, and local debt yield would also average 1% or lower for many years? This question implies that the entire yield curve (term structure) is under 1%.  What are implications for munis, mortgages, swaps, forwards, etc.

3. The third question involves geopolitical risk and personal safety. At Camp Kotok we had private conversation on this subject. The results are alarming as many of us have altered global travel plans. I’m one of those who has done so. So here’s the question. Think about the world that you see. Then make a list of every place you have visited during your lifetime. This takes a few days for older and well-traveled folks as memories are rekindled. Then look at the list and ask which of these destinations you would visit today and which not. Add this consideration: Which would you visit only with ample security and protection?

Lastly, Dave Nadig drafted an exquisite description of Camp Kotok and has given us permission to share it. Enjoy: https://www.etf.com/sections/blog/camp-kotok-wall-street-woods

We also have permission to share Brent Donnelly’s thoughts on Camp Kotok, 2019: Brent-Donnelly’s-Notes-from-Camp-Kotok-2019.pdf

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


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Trump’s trade war with China is starting to get out of hand

Trump’s trade war with China is starting to get out of hand

Market Commentary - Cumberland Advisors - Currency Risk Quote (David Kotok)

Excerpts below.

By Matt Egan, CNN Business
Monday, Aug 5th 2019

New York (CNN Business)The US-China trade war has always been serious. Now it’s starting to get scary. China allowed its currency to drop sharply on Monday to the weakest level in more than a decade. And China announced its companies have halted purchases of American agricultural goods. This comes after US President Donald Trump vowed last week to impose tariffs for the first time on a wide swath of US consumer goods from China.
 
China’s currency move raised the specter of a currency war, where major countries race to devalue their respective currencies.
 
“It’s the currency risk that is the most volatile, hardest to see and the fastest reacting,” said David R. Kotok. “That’s the left hook that can knock out the boxer.”

 

Read the full article here: CNN Business


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Cumberland Advisors Market Commentary – Rocky Mountain Summit

Four states – CO, WY, ID, UT – in six days; private professional meetings, a few public gatherings, two Chatham House roundtables, and one half-day with a fly rod.

My longtime friend Bill Dunkelberg and I brought nearly 40 trout to the net for release. An equal number escaped the net during the fight. Here we are after the four-hour marathon.

David Kotok & Bill Dunkelberg
The location was Trout Ranch in Idaho, a few miles from Afton, Wyoming. Hosting was the Bronze Buffalo Club. They partner with the Global Interdependence Center for the Rocky Mountain Summit. The public presentations at the Summit are posted on the GIC website, https://www.interdependence.org/ . Below is this photo of a spawning rainbow trout (notice the shape of the jaw along with the glorious coloration), I will bullet the takeaways from the Chatham House discussions.

David Kotok & Fish
Before I get to money and markets, let me quote one paragraph from Kyle Westway’s weekend missive #283:

“Imagine a world in which priests only make their money by selling access to what you said in the confession booth? That’s basically Facebook / Google’s business model. Except in this case, Facebook is doing that with 2 billion people and has a supercomputer that’s actually predicting the confessions you’re going to make before you make them. And it’s stunningly accurate. AI has been shown to predict our behavior better than we can. It can guess our political affiliation with 80 percent accuracy, figure out you’re homosexual before even you know it, and start suggesting strollers in advance of the pregnancy test turning pink. As each track leads to profit maximization, companies must become more aggressive in the race for attention. First it was likes and dislikes, making consumers active participants, causing them to feel as if they have personal agency within the platform. They do, to an extent, yet as the algorithms churn along, they learn user behavior, creating ‘two billion Truman Shows.’ Watch Tristian Harris – former Google design ethicist – speaking at a Congressional hearing (ironically on YouTube).”

I strongly recommend the 17-minute YouTube of Tristan Harris’s US Senate testimony. The link is at the end. Think of this two ways: What it indicates for society and social behavior, and what it means for regulation, supervision, and legal changes applied to social media businesses.

Here is the link to his testimony: https://www.youtube.com/watch?v=WQMuxNiYoz4 .

Let’s get to takeaways from the week in the West, where we encountered publicly and privately owned businesses and wealth running to trillions of dollars. Many of the decision makers who participated in our gatherings have 8- or 9- or 10-figure personal wealth. All conversation was conducted under the Chatham House Rule.

Bullets

1. Trade war – No one is able to predict outcomes now, so capital investment is being deferred. Some tariff cost passthrough has started. The lead-to-lag timing of trade war effects is about a year, between a Trump sabre rattle and an actual outcome. What we see today in sales, prices, and other trade war impacts is the result of last year’s trade and tariffs policy. This delayed impact portends poorly for the next year or so.

2. China – Most folks see the unfolding generation as one of protracted adversity. They characterize the US-China negotiations as a modern version of the Cold War of yesteryear.

3. The Fed – Never have I heard so much criticism and ridicule of the central bank. Voices that are direct but polite in public are intense and negative in private. Paul McCulley’s keynote alluded to rewriting the Federal Reserve Act. Richmond Fed President Barkin was a keynote, too. He sat politely through the other presentations. My guess is that he has a message to carry back to the Fed, which will include the need for the Fed to improve communication. I believe that improvement is essential, and my takeaway is that the Fed as we know it is at risk and that the peril from a political intervention by Congress is high and rising.

4. Negative interest rates – Negative rates in Europe and Japan are universally viewed as poison. Nearly all believe this experiment ends badly. No one knows when, and so all must speculate about how it ends as they make portfolio decisions.

5. Investments – Portfolio options discussed included real estate, timber, farmland, gold, other hard assets, tactical stock market plays, private equity, royalties, and some exotic structures, plus privately owned operations. Bill Dunkelberg reminded everyone that there are 30 million businesses in the US and only 20,000 trade on the stock exchanges. Half the US nongovernment economy is privately owned. A chunk of that half populated these meetings.

6. Politics – My guess is 70% or more of the group believes Trump will be re-elected. Few like him or his behavior, but most are willing to overlook it because of his policy outcomes on taxes and deregulation. Trade war escalation and a recession would change this. Most believe Trump knows that and will avoid those pitfalls. Most believe the Democrats haven’t produced a viable alternative to Trump. If one does emerge, many would consider that option. In one forum of 25 people, only two thought Biden would be the nominee. Some noted how at this stage in the previous election Hillary Clinton was not yet on many people’s radar screens, and Trump was dismissed as impossible. A few mentioned de Blasio or Castro as possible emerging names. Harris comes into the Super Tuesday fight with a California basket of delegates. Anyway, lots of speculation, and the only majority view was that Trump gets re-elected.

7. Stores of value – The last takeaway is about money, whether euro or dollar or yen. All agree it is still functioning as a medium of exchange and a unit of account – we pay and receive fiat money, whether via paper or electronic paper or interpersonal Venmo transfers. But many believe the store-of-value characteristic of money does not reside with fiat currencies. The debate does not concern whether this is true, but instead where store of value does reside. Gold is an increasingly acceptable option. Bitcoin has little history. SDR anchorage hasn’t caught on. Few respect a small group debating monetary policy around a table in the Marriner Eccles Building as a reliable way to ensure that fiat money stores value.

On this last point the world’s central bankers are failing. They ARE clearing payments. They ARE facilitating government deficits, and they ARE trying to avoid recessions and default meltdowns. But in so doing, they ARE losing the trust and confidence of their constituents. In my view that trade-off is dangerous. The store-of-value characteristic of money started with the Athenian “owl” 2400 years ago. History shows that things ended badly every time a monetary authority lost sight of that store-of-value attribute.

Thank you to the Global Interdependence Center and the Bronze Buffalo Club for an enlightening week.

Final note. All fish were released. All hooks were barbless.

Lastly. Cumberland has some cash reserve. Our US ETF portfolios include an overweight position in the gold miner ETF.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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John Auther’s Points of Return

Excerpt from Bloomberg.com article,

Points of Return

by John Authers
July 11, 2019

If the Federal Reserve does not cut its target for the federal funds rate by at least 25 basis points at the end of this month, many in the market will feel entitled to sue the central bank for breach of contract. Wednesday’s congressional testimony by Fed Chairman Jerome Powell and the publication of the minutes to the central bank’s last monetary policy meeting were the last chance to walk back the widespread assumption that a July rate cut is a certainty. Powell made no attempt whatever to do so.

Cumberland-Advisors-David-Kotok-In-The-News

Kotok invokes the relevance of the gold standard:

“The reference to Mundell and the trinity provoked a thought as I saw the Chinese continue to acquire gold and pursue what seems to be a gold for USD substitution. China is not alone as we see others like India and Russia pursuing something similar. So my question involves how a gold substitute for USD alters the Mundell construction.

“The recent expansion of negative rate sovereign debt to $14T only adds to the question as gold forward contracts have positive yield. Thus a country using gold as a part of its reserve allocation is incentivized to bias away from fiat currency and add to gold. This is a speculative assertion, of course, but the rising gold price seems to be reflecting the global downward march in interest rates. In a world where 95% of all high grade sovereign debt now yields below the fed funds rate and that rate is expected to fall, shouldn’t we question the Mundell construction? And if we do, isn’t gold reserve accumulation a force which might dampen the stress of Mundell’s trinity?

“Magnus doesn’t consider this option. We ponder the question. Any Thoughts?”

I have a lot of thoughts, although they are not yet well organized. Kotok is right that China is transferring to gold and has stepped up its purchases of late, but this is still on a very small scale. Its official gold assets are now $87 billion, according to the People’s Bank of China. This is a lot of money, but still a tiny proportion of total Chinese reserves of more than $3 trillion

Read the full article by John Authers at the Bloomberg website: www.bloomberg.com


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Too Many Uncertainties

Excerpt from Barron’s

Too Many Uncertainties
06/21/2019 By Paul Farrell

Cumberland Advisors William Bill Witherell Ph.D.

Barron’s writer, Paul Farrell, assembles a collection of outtakes for his piece titled, “Too Many Uncertainties.”

Destabilizing

Second-Quarter 2019 Review
by William Witherell, Ph.D. of Cumberland Advisors

June 20: The factors that have led to high volatility in the global equity markets during the quarter are still present. Foremost are the destabilizing effects of rising trade and technology tensions, which are hurting manufacturing sectors in many countries, disrupting global value chains, and weighing heavily on investment decisions. Global trade has slowed dramatically, from a 5.5% annual pace in 2017 to a projected rate of 2.1% this year. The second cause of market volatility, related to the first, has been the slowdown in global economic growth and increasing concerns about the possibility of recession in major economies including the US. Along with the trade concerns, the easing of growth rates in China, India, and many other emerging markets; the contracting of the manufacturing sector and consequent weakness in Europe; and the stagnating Japanese economy have added to growth worries.

–Bill Witherell

To be considered for this section, material, with the author’s name and address, should be sent to MarketWatch@barrons.com

Read the full collection of excerpts at the Barron’s Website


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Trump revs up his Wayback Machine

Excerpt from…

Trump revs up his Wayback Machine

In a single week, the president leaned heavily into economic theories from as far back as the 18th century.

By BEN WHITE (bwhite@politico.com; @morningmoneyben)
06/20/2019 05:15 AM EDT

Cumberland-Advisors-Robert-Bob-Eisenbeis-In-The-News

Stanley Fischer, the former Fed vice chair, said at a forum Tuesday that slashing rates right now following pressure from Trump “would destroy the independence of the Fed,“ adding “it’s not something that should be done.”

Economists also note that monetary policy remains fairly loose and that one or two cuts is not likely to address damage from Trump’s trade policies.

“Realistically, a cut in rates is not going to counter the damage to farmers trying to sell their soybeans,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors and former research director at the Atlanta Fed. “A rate cut is pretty far removed from the damage the administration is doing with their tariff policy. If you are a farmer or a car maker trying to figure out what to do, it doesn’t help you.”

Trump also signaled this week that he may not wind up cutting a deal with China.

Read the full article at POLITICO.com .


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Turandot

Giacomo Puccini set China as the venue for his famous opera Turandot. Opera buffs will know it well. Anyone not familiar with this intriguing romantic opera is certainly invited to experience it.
Market Commentary - Cumberland Advisors - Market Commentary
Why do I start a commentary about China and the Trump Trade War by invoking an opera to serve as a metaphor? The reason is that there is a history lesson.
Puccini wrote the entire opera except for the final duet. He died on November 29, 1924, before completing the text. Franco Alfano was commissioned to complete the opera, but conductor Arturo Toscanini did not like the result. At the opera’s premiere on April 25, 1926, Toscanini stopped in the middle of the third act and announced to the audience, “Here the opera ends, because at this point the maestro died.” (Source: Richard Russell, executive director of Sarasota Opera)
The operatic drama underway features Trump and Xi. The setting is China and also Washington. Instead of the three riddles of Turandot, we have tweets back and forth between the US and in China. Sadly, though, the current version is not a comic opera. The closing duet is not yet written.
We may still end up with a settlement and the reduction of tariffs or their elimination. That is the benign outcome. Many market agents still hope for it.
To us, the evidence suggests the contrary. The final act of this performance may turn out as badly as Toscanini thought that Alfano’s ending did.
Look at the actions of China and not at the tweets in English in the US. Read the English translation of China’s draft “Measures for Data Security Management,” published May 24th. Here is an article about that document: https://www.scmp.com/tech/policy/article/3011655/chinas-cybersecurity-laws-may-be-used-block-us-tech-firms-national. The draft itself is available here in PDF form: https://www.insideprivacy.com/wp-content/uploads/sites/6/2019/05/Measures-for-Data-Security-Management_Bilingual-1.pdf.
To get a sense of what the stakes are for China and for its leader in particular, peruse this piece from Bloomberg News: “Xi Has Few Good Options After Trump’s Ultimatum on G-20 Meeting,” https://www.bloomberg.com/news/articles/2019-06-11/xi-has-few-good-options-after-trump-s-ultimatum-on-g-20-meeting.
And for deeper analysis, let’s turn to Geopolitical Futures. In a piece titled “The Fog of Trade War: Can China Outlast the US?”, GPF notes that China has been ramping up rhetoric that suggests “Beijing expects the trade war to devolve into a protracted, bloody slog.” However, GPF thinks conditions are still ripening for a partial deal on trade that ends tariffs; but “when it comes, it will hinge foremost on two of the trickiest geopolitical elements to forecast – the exact timing of the next U.S. recession and the mood of U.S. voters ahead of the next election.”
On balance, GPF concludes,
“Most likely, the White House will blink first, given the economic and political toll the tariffs will take on the United States. The U.S. tariffs alone won’t tip the economy into recession. If the current 25 percent duties on $250 billion in Chinese goods remain in place, most estimates expect an annual 0.3 percent-0.5 percent hit to gross domestic product and the loss of up to a million jobs….
“[T]he U.S. has been overdue for a downturn … and the tariffs are certainly capable of accelerating its arrival.”
As GPF notes, “None of this would matter if the tariffs were bearing fruit in the Trump administration’s two main goals: extracting major concessions from China and bringing jobs back to the U.S. But these don’t appear to be the case. Rather, while the costs of U.S. tariffs are increasing, the returns may be diminishing.”
We strongly recommend that readers study this entire excellent commentary from Geopolitical Futures, and we thank George and Meredith Friedman for permission to link to their website. Go to https://geopoliticalfutures.com/the-fog-of-trade-war-can-china-outlast-the-us/?utm_source=affiliate_cumber.com&utm_campaign=unvsl_affiliate_postid87866_cumber.com_2019-06-10&utm_medium=referral_unvsl.
At Cumberland, we believe that the US-China dispute is not a shorter-term nor a temporary item. We believe this is a long-term geopolitical conflict and a substantial one.
We still have a cash reserve in our US ETF portfolios.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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