It is
the maxim of every prudent master of a family, never to attempt to make at home
what it will cost him more to make than to buy...What is prudence in the
conduct of every private family, can scarce be folly in that of a great
kingdom.
Adam
Smith, The Wealth of Nations, 1776.
This weekend we
return to the Bitcoin bust, and the end of dollar supremacy just a decade away,
but first news of the Great Global Trump Trade War. Trade wars are easy to
start but impossible to win, to misquote or correct quote President Trump.
With the ECB setting
off a new round in the currency wars, forcing the dollar higher, stealing
markets from US companies, this trade war will be very hard to end. But no one
is yet talking about ending this trade war, for now all the talk is about
escalating.
Though for now, tariffs
are just starting and only on a tiny fraction of global trade, it’s time to be
out of way over priced and deeply indebted stocks, which is to say most of
them. This trade and currency war has still a long way to go.
"Were we to be directed from Washington when to sow and when to reap, we should soon want bread."
Thomas Jefferson
Why the U.S.-China trade deficit is so huge: Here’s all the stuff America imports
Published: June 15, 2018 2:27 p.m. ET
President Donald Trump will let tariffs
on Chinese goods worth up to $50 billion take effect after talks between
the two countries failed to appease White House demands on reducing huge U.S.
trade deficits. The U.S. has run large deficits with China for years and in some cases no longer produces certain goods such as consumer electronics that are popular with Americans. It won’t be easy, and it might even be impossible, to reduce the gap much any time soon.
Also Read: A China skeptic takes a victory lap as unwanted steel floods the market
In 2017, the U.S. posted a $375.6 billion deficit in goods with China. Most glaring is the huge deficit in computers and electronics, but the U.S. is a net importer from China in most market segments except for agriculture. The U.S. is excluding Chinese-made cellphones and televisions from its tariffs.
China has been a big buyer of American-grown soybeans and other crops. Planes made by Boeing BA, -1.25% also are a product in demand in China.
What happens next? Trump has vowed to increase tariffs if China retaliates, but the Chinese promised to return the favor. A trade dispute between the two largest economies in the world could result in lasting damage to the global economy if it metastasizes.
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Trade War's Battle Lines Drawn as U.S., China Set Tariff Lists
By Andrew Mayeda and Jenny Leonard
Updated on 15 June 2018, 22:28 GMT+1
The U.S. and China moved to the brink of a trade war on Friday after the
Trump administration announced tariffs on Chinese imports would take effect
in three weeks and pledged additional investment restrictions, prompting an
immediate vow of retaliation from Beijing.The world’s No. 2 economy will impose tariffs with the “same scale and intensity” on imports from the U.S., and all of China’s earlier trade commitments are now off the table, according to government statements. U.S. goods slated for levies include farm products such as soybeans, a potential blow to rural states that backed President Donald Trump’s election in 2016.
Trump on Friday pledged more tariffs if China follows through on the retaliation threats, without specifying an amount. In April, he asked officials to consider an additional $100 billion in levies. Meanwhile, U.S. Trade Representative Robert Lighthizer said an announcement on U.S. investment restrictions on China will follow in the next two weeks.
Full USTR Statement on Tariffs on Chinese Products
“Our hope is that it doesn’t lead to a rash reaction from China,” Lighthizer said in an interview on Fox Business Network on Friday. “We hope that this leads to further negotiations and we hope it leads to China changing its policies, at least with respect to us, and opening up their market.”
The first wave of 25 percent tariffs will hit $34 billion in
goods and take effect July 6, with another $16 billion still to be reviewed,
the U.S. Trade Representative said in a separate statement.
----Hours
later -- early Saturday in China -- the nation’s Finance Ministry issued a list
of 545 product categories, also covering about $34 billion in exports from the
U.S., to be subject to an additional 25 percent tariff starting July 6. They
included a variety of agricultural products, including soybeans, corn and wheat
along with beef, pork and poultry, plus automobiles. A second set of tariffs to
begin at a later date spanned other goods including coal, crude oil, gasoline
and medical equipment.
----Criticism from the American business community came swiftly.
“Imposing
tariffs places the cost of China’s unfair trade practices squarely on the
shoulders of American consumers, manufacturers, farmers, and ranchers. This is
not the right approach,” Thomas Donohue, president of the U.S. Chamber of
Commerce, said in a statement.
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Here’s how the ECB just breathed new life into the dollar rally, analysts say
Published: June 14, 2018 4:44 p.m. ET
ECB rates frozen until next summer while Fed on track to keep hiking
By guaranteeing that it will sit on its hands for at least a year when it comes to raising interest rates, the European Central Bank sank the euro Thursday and potentially gave the dollar fuel for a long-running rally, analysts said.Though the ECB did more or less what market participants expected it to do in terms of laying out a plan to wind down its QE program. The euro’s EURUSD, -0.0951% sharp drop reflected surprise at the promise by policy makers led by ECB President Mario Draghi to leave interest rates at present, ultralow levels until at least next summer. Investors had penciled in a move in the first half of 2019.
Marc Ostwald, global strategist at ADM Investor Services International, called it “how to announce the end of QE and stay very dovish — another Draghi tour de force.”
The shared currency registered its steepest one-day drop since the U.K. vote to leave the European Union in June 2016, last fetching $1.1595, down 1.7% at its lowest level since the beginning of the month, according to FactSet data. Meanwhile, the ICE U.S. Dollar Index DXY, +0.20% bounced 1.1% higher to 94.732.
And this might just be the opening act for a theme that could endure for at least 12 months. While the Fed is expected to deliver up to two more rate increases in 2018 and further hikes next year, the ECB just ensured it won’t move until the latter half of next year at the earliest.
The Federal Reserve completed
its seventh on Wednesday, putting its key rates in the range of 1.75% to 2%.
Dollar bulls have long been touting the rate differentials between the eurozone
and the U.S., but they just got more ammunition.
By the time the ECB gets
around to upping its rates, “differentials will have moved even further in
favor of the U.S. dollar,” said Rabobank senior FX strategist Jane Foley. “We
continue to hold the view that the Fed may forgo a rate hike in December and
limit itself to a total of three moves in 2018. Either way, by September 2019,
the ECB will be significantly behind the Fed in terms of policy normalization.”
The Fed’s dot plot shows
policy makers expect two additional rate increases this year, followed by three
in 2019, while the ECB’s main lending rate is set to remain at 0% until next
summer.
“By the end of 2019, the Fed
expects to have raised rates 12 times since the end of 2014, yet we remain no
clearer as to when to expect the next rate increase from either the European
Central Bank, Bank of Japan or the Bank of England,” wrote Michael Hewson,
chief market analyst at CMC Markets U.K. “This continued widening of interest
rate differentials could act as a significant global headwind in the coming
months.”
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Bitcoin will be impossible to reflate into a bubble again
Published: June 14, 2018 5:20 p.m. ET
Also, with the Federal Reserve’s quantitative-tightening operations, there’s the potential for a much bigger dollar spike
Voltaire famously said that “paper money eventually returns to its intrinsic value — zero.”His words serve as an inspiration for many precious metals enthusiasts, but if Voltaire were alive today, he very well might modify that statement to cryptocurrencies “eventually returning to their intrinsic value — zero.” The same could be said for the Argentine peso, the Turkish lira and other currencies that have turned into confetti in the 21st century, which is only 18 years old.
First, let’s look at bitcoin.
I don’t have a problem with blockchain as a technology, which I admit is revolutionary; but I do have a problem with bitcoin BTCUSD, -1.03% as I believe it is an electronic line of code that is unnecessary in the blockchain process. It was designed with the idea of creating a global bubble. This bubble has now popped, and it is deflating before our very eyes (see chart).
There have been recent stories in the press that huge sell-offs have happened before, but the bitcoin bubble has still managed to reflate. The most notable such bitcoin sell-off and recovery came in early 2014 around the failure of the largest bitcoin exchange in the world at the time, the Mt. Gox exchange, after it was decimated by hackers. The reason why I think this bubble will be impossible to reflate is that regulators have finally figured out how big traders spoof the bid-ask spreads in order to manipulate crypto prices.
The Justice Department has jumped in with a criminal investigation, and the Commodity Futures Trading Commission (CFTC) is furious at the options and futures exchange CME Group for not having put in place agreements to properly settle its futures contracts, as the exchanges whose prices the CME relies on for settlement values refuse to share the data! (See the June 8 MarketWatch article, “U.S. regulators demand trading data from bitcoin exchanges in manipulation probe.”)
Still, I am grateful that the CME launched bitcoin futures contracts, even though it is glaringly obvious that they did so prematurely, because that created a two-way market. Although I think these contracts have a very high chance of being eventually delisted as trading volumes decline and the bitcoin price keeps going lower, the CME futures contracts popped the bitcoin bubble even before the regulators jumped in.
As
any fund manager worth his salt will tell you, no market price is real unless
you can short the asset. Before the listing of bitcoin futures, we had a global
mania that was a one-way street. I believe bitcoin is the first truly global
mania because of the rise of the internet. Previously, bubbles were
geographically segregated, such as the Tulip Bulb mania, the South Sea bubble,
the 1929 Wall Street crash and many others.
---- At the time of this writing, bitcoin has a “market cap” of $111 billion, according to coinmarketcap.com. As I have mentioned previously, I think the term “bitcoin market cap” is absurd, as there are no sales and earnings to discount into the future. A market in bubble mode is not a discounting mechanism but a runaway train just marking time until it goes off the tracks.
That means $111 billion is
“invested” on the way to zero, which is where I think bitcoin is going.
---- Because I do not believe that the
Federal Reserve is done with their quantitative-tightening operations, I think
we have the potential for a much bigger dollar spike than the one we have at
present, due to the rampant emerging market dollar borrowing that we have
witnessed over the past 10 years. (Dollar borrowing is equal to dollar
shorting, as the borrowed dollars are sold to use as the borrowers please.)
When rising U.S. interest rates catalyze the repayment of those loans, they
cause a dollar short squeeze.As things stand right now, such a spike in the exchange value of the dollar would make all emerging markets’ currency issues deteriorate significantly from present levels through the end of 2018.
Ivan Martchev is an investment strategist with institutional money manager Navellier and Associates. The opinions expressed are his own.
‘Dr. Doom’ calls out crypto bull; major coins rally on SEC news
Published: June 14, 2018 5:08 p.m. ET
SEC director says bitcoin and ether are not securities, which sends digital currencies higher
As crypto traders watched their portfolios deteriorate Wednesday, Turkish-born American economist Nouriel Roubini took to social media to reiterate his stance on cryptocurrencies and blockchain, the decentralized technology that underpins them.Roubini, who famously predicted the collapse in the U.S. housing market and banking system, has been just as bearish on digital currencies since they began their meteoric rise in 2017. In February, he said bitcoin was going to zero and has called bitcoin “the mother of all bubbles,” living up to his “Dr. Doom” nickname.
The New York University professor has frequently voiced his opinions on social media, and as digital currencies unraveled Wednesday, Roubini was at it again, taking a shot at venture capitalist Tim Draper, who thinks a single bitcoin will be worth $250,000 by 2022.
Read: Opinion: Roubini: Blockchain is one of the most overhyped technologies ever
However, those decimated portfolios are showed some life Thursday, after a favorable comment from a leading SEC voice.
After trading to $6,133.31 late Wednesday, bitcoin bounced back more than 6%. A single bitcoin BTCUSD, -1.17% last changed hands at $6,651.25, up 6.4%, since 5 p.m. Wednesday, Eastern time, on the Kraken crypto exchange.
Digital-currency owners breathed a sigh of relief Thursday when William Hinman, the director of corporate finance at the U.S. Securities and Exchange Commission, said bitcoin and ether are not securities.
“And putting aside the fundraising that accompanied the creation of ether, based on my understanding of the present state of ether, the ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions,” said Hinman.
Downtrend confirmed, says technical analyst
As technical analysts continue to hunt for the next support level, one noted chart-focused analyst said Wednesday’s break of $6,450 was confirmation we are in a downtrend, and there is no support for another $1,000 drop.“BTC is now stress-testing its next critical support level at the April lows (6,450), which if broken, would establish the first series of lower lows since 2015, and by definition, confirm a new downtrend of lower lows for BTC,” said Rob Sluymer, managing director and technical strategist at Fundstrat Global Advisors, in a note early Wednesday. “Next support is near 5,500 followed by 3,200.”
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Finally, yet another
reason to get long fully paid up physical gold and silver as insurance against
what comes next. The end is nigh for the Great Nixonian Error of fiat money. Dollar supremacy fails next decade, and no
one, not even Trump, seems to care.
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
The financial hole for Social Security and Medicare is even deeper than the experts say
By James
C. Capretta Published: June 15, 2018
11:20 a.m. ET
The trustees for the Social Security and Medicare trust funds released their
annual reports last week. And the takeaway? Despite a strong economy, both
programs have large and growing financial deficits. Unfortunately, the gap
between spending and revenue for these programs is likely even larger than the
official projections show because of assumed but unrealistic cuts in
medical-care payment rates and the persistently low birth rates of recent
years.The Social Security report estimates the program will run out of reserves in 2034, after which benefits would have to be reduced by about 25% to keep spending within available annual revenue. Over 75 years, Social Security has an unfunded liability of $13.2 trillion. Restoring permanent solvency to the program would require raising the payroll tax rate immediately from today’s combined employer-employee rate of 12.4% of taxable payroll to 15.2%. Alternatively, Social Security benefits would need to be cut on a permanent basis by about 17%.
The financial hole for Medicare is even deeper. The Medicare hospital insurance trust fund will run out of reserves in 2026. Last year, the trustees expected the program’s reserves to last until 2029. Medicare has a second trust fund, for physician and outpatient services and for prescription drugs, that is permanently “solvent” because it has an unlimited tap on the general fund of the Treasury. What this really means is that premiums paid by the beneficiaries will cover only about 25% of program costs; the rest of the spending is unfinanced. Income and corporate taxes fall far short of what is needed to cover these costs along with the rest of the government’s obligations. Medicare’s overall unfunded liability over 75 years is more than $37 trillion.
Taken together, the combined unfunded liabilities of Social Security and Medicare are more than $50 trillion, according to official government projections. Unsettling as these estimates are, they are probably optimistic — for two reasons.
First, the Medicare projections assume deep, permanent, and ongoing cuts in payment rates for physicians and hospitals that are difficult to believe will be implemented.
----The actuaries responsible for the financial projections of the
Medicare program continue to warn that it is unrealistic to assume these
cuts can be implemented every year into the future. Among other things, they
project that the physician cuts would push Medicare’s fees from about 75% of
private insurance payments today to less than 60% in 2030. Medicare’s payments
to hospitals would fall from just above 60% today to below that threshold in
2030, and to around 50% in 2050. The actuaries warn that these low payment
rates could lead to facility closures and harm access to care for the elderly.
----The second reason that both the Social Security and Medicare projections may be optimistic is the recent news of declining birth rates. Last month, the Centers for Disease Control and Prevention released data showing that the birth rate in the U.S. is now at its lowest level in 40 years. In 2017, the total fertility rate (measured as total births per 1000 women of childbearing age) was 1.76, down from 2.07 in 2008 and far below the population replacement level of 2.1.
The birth rate fell in the aftermath of the deep recession of 2008 to 2009, which was expected. But it has not yet started to rise again to pre-recession levels. This is worrisome because pay-as-you-go systems like Social Security and Medicare depend heavily on future growth in the labor force to remain solvent. If the birth rate remains at the current level indefinitely, the problems for these retirement programs will be much worse than the 2018 reports indicate. The Social Security projections assume a long-term total fertility rate of 2.0. If, instead, the rate is 1.8, the financial hole for the program will be about 25% deeper than is projected in the 2018 report. The deficit for Medicare’s hospital insurance trust fund will also get much worse with fewer births, as fewer taxpayers will be paying into the program in future years.
As the bad news on entitlement spending and the fiscal outlook rolls in, the silence among the nation’s political leaders is deafening. But they can’t say they haven’t been warned. The trustees’ reports have been sounding the alarm for years. When the crisis hits — as eventually it will — political leaders will have no one to blame but themselves for not acting when they had the chance to do so.
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."
Murray N. Rothbard
The monthly Coppock Indicators finished May.
DJIA: 24,416 +201 Down. NASDAQ:
7,442 +276 Down. SP500: 2,705 +180 Down.
All
three slow indicators moved down in March and April and continued down in May.
For some a new bear signal, for others a take profits and get back to cash
signal.
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