Trump’s Reckless Trade Gamble; Congress Leaves Town; The Democrats’ Disastrous Debates
Author: Greg Valliere
August 2, 2019
THE TIMING WASN’T EXACTLY SUBTLE: After getting only a measly 25 basis point rate cut from the Fed, President Trump decided to ratchet up the trade war with China. His message to the Fed was clear — I’ll make sure that trade will be a major economic headwind for months to come, so you’d better cut rates further.
THIS STRIKES US AS A RECKLESS GAMBLE by Trump, for three reasons: 1. There’s no reason to believe rate cuts can compensate for the uncertainty over tariffs; 2. There’s no guarantee that Trump can pivot and cut a deal with China this winter, which we believe is his pre-election scenario; 3. The Fed goal of higher inflation may be just around the corner, eliminating the need for more rate cuts.
ONE THING APPEARS CLEAR IN THE TRADE WAR: Both sides are dug in, determined not to lose face. Talks won’t even resume until early September, and hopes for a deal by December may be too optimistic.
THE NEW TARIFFS ANNOUNCED YESTERDAY account for a fraction of U.S. GDP, but they send two important signals — Trump, the self-described “tariff man,” may use this tactic again against China and possibly Europe; and the new tariffs, hitting Chinese toys, consumer goods, cell phones, etc. are bound to ratchet up inflationary pressure. Everyone seemingly has proclaimed the death of inflation — but that kind of unanimity makes us nervous.
THE GREAT UNKNOWN is whether Presidents Xi and Trump have an end game. It’s looking like they may not, with the prospect that an escalating trade war may create more problems than the Federal Reserve can solve.
* * * * *
BUDGET DEAL DONE, CONGRESS LEAVES TOWN: Republicans didn’t vote overwhelmingly for the spending/debt ceiling bill yesterday, but Democrats did — because it raises spending by $320 billion and effectively abolishes strict budget caps.
IN PRIVATE, Democrats were so satisfied with the deal that they looked
the other way as two provisions passed: one would would allow Trump to spend money on a wall with Mexico, the other retained the Hyde Amendment’s curbs against federal funding for abortion.
FISCAL POLICY IS TOTALLY OUT OF CONTROL, monetary policy is super-accommodative, the labor market is red hot, and tariffs will bring higher prices. We’re astonished that virtually no analysts are adding up these factors and predicting the inevitable return of inflation.
* * * * *
THE UNMITIGATED DISASTER, SELF-INFLICTED, for the Democrats in their first two rounds of debates has rocked party insiders. Wednesday’s pile-on against Joe Biden wasn’t the big surprise; the real shocker was criticism of Barack Obama by virtually all of the candidates — which simply provided talking points for Trump and the Republicans.
THE PARTY IS REELING, with only one candidate — Biden — who has a realistic chance of beating Trump. Their most forceful candidate, Elizabeth Warren, has dominated the first two rounds but we would make her a serious underdog in the general election.
BIDEN SIMPLY NEEDS TO WRAP HIMSELF AROUND OBAMA and avoid gaffes; he stumbled verbally several times on Wednesday night, raising some eyebrows. He’ll maintain a low profile for the rest of the summer, but he can’t run out the clock as more debates loom in September. Biden is the front-runner for the nomination, but if he stumbles, the party’s pro-Warren progressives may get what they want — and so would Trump, who is eager to run against a far-left Democrat.
* * * * *
EDITOR’S NOTE: Now that Congress has left town, the Fed has acted, and the debates are over for a while, we’ll scale back our schedule. We won’t publish every day in August, probably only two or three times a week.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.