Trade Deception; More Spending; Beto’s Re-do
Author: Greg Valliere
May 14, 2019
ANGRY MARKETS: We got some grouchy emails yesterday from readers who essentially had the same complaint: the Trump Administration misled the markets this spring by whispering that a trade deal was imminent — when it most definitely was not. “They were debating whether the signing ceremony would be at Mar-a-Lago or in Hawaii, so of course the markets were upbeat,” one reader wrote, asserting that the markets won’t believe happy spin again.
ANOTHER MONTH OF THIS: President Trump said last night that it will take 3 to 4 weeks before it becomes apparent whether a trade deal can win approval. So that means day after day of the markets over-reacting to Trump tweets, Larry Kudlow TV interviews and Chinese threats. Even more retaliation is coming but we still expect a deal — after a very rocky ride.
LEARNING TO LIVE WITH TARIFFS: Trump calls himself a “tariff guy,” and this may become a permanent feature of the trade landscape — not just tariffs on China but also on Canada, Mexico, Europe, Japan, etc.
WE AGREE WITH TRUMP that China doesn’t play fair and must be confronted, but in the short run this tariff war will reduce the 3% GDP pace down to 2-1/2% or lower. The economy can withstand that, but the markets — which were priced for perfection this spring — feel blindsided.
ONE READER EMAILED US YESTERDAY: “If Trump is going to be a tariff president, fine, it’s clear that he wants to make Americans less likely to purchase imports because they’ll be more expensive. But his desire to fundamentally change trade policy has caught the markets by surprise because the Trump spin had us getting a deal this month.”
SPENDING IS OFF TO THE MOON: Data through the crucial April tax season show that the strong economy has produced a 2% rise in revenues despite massive tax cuts — but spending was alarming. Outlays are 7% higher, with still another new spending goal joining defense, infrastructure, border security, etc. The president and the politicians want to spend more money on space.
WE AGREE WITH TRUMP’S call for $1.6 billion in spending to re-explore the moon, and we definitely agree that Russia and China pose a security threat in space (check out the excellent piece in this past weekend’s Wall Street Journal on the need to spend on space defense). Trump has proposed a 1.4% hike in overall NASA funding, to $21 billion in fiscal 2020 after a large increase this year, and he has a good chance of creating a U.S. space force, a new branch of the military.
THE PROBLEM, AS USUAL, IS FUNDING: Trump wants the private sector to participate, but the details are vague. Republicans want offsets from other parts of the budget, but there’s little likelihood of any cuts; Trump’s call for a 5% haircut for all federal agencies has been largely forgotten. Both literally and figuratively, spending is off to the moon.
THE BETO RE-DO: As we approach two dozen candidates in the Democrats’ presidential race, it’s inevitable that some campaigns will stumble — and none has been more disappointing than Beto O’Rourke’s ragged start. We thought he would fade by fall, but not this fast.
O’ROURKE SAID YESTERDAY that he’s planning on jump-starting his campaign, focusing on issues (that’s a start). Frankly, his only hope is that Joe Biden says or does something disqualifying; that’s the only hope for most of the challengers. We’ll offer our monthly assessment of the pack tomorrow, with O’Rourke barely making the Top Ten.
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