This week was exhausting for the sheer amount of propaganda that emanated from the Trump administration and one thing I’ve variously tried to drive home in these pages lately when discussing, for instance, Larry Kudlow’s various pronouncements about the tariffs, the economy and the dollar, is that there’s no room for interpretation anymore.
That is, it’s no longer possible to give Trump and his surrogates the benefit of the doubt even if you wanted to, which I, for one, don’t. They’re now engaged in a 24-7, all hands on deck effort to insist the ship isn’t sinking, and ironically, it’s playing out right alongside a similar effort from Turkish President Recep Tayyip Erdogan, whose rhetoric is couched in precisely the same terms as Trump’s.
Here’s a quote from one of the two leaders mentioned above delivered on Saturday morning:
We see your game and we’re challenging it.
If you didn’t know who said that (it’s from Erdogan), it would be a complete toss up if you had to guess between the U.S. President and his Turkish counterpart.
Hilariously, Trump is helping to make Erdogan’s otherwise preposterous narrative some semblance of true, because the U.S. President is in fact using sanctions and currencies to try and plunge Turkey into chaos and in Trump’s defense, this would hardly be the first time a developed nation has engaged in economic warfare.
Turkey was cut further into junk territory on Friday evening by S&P and Moody’s. That was largely expected. The country is at B+ with S&P now, on par with Greece and Argentina.
I’ve long drawn comparisons between Erdogan and Trump and I suggested the U.S. President would follow the Turkish autocrat down the road to encroaching on central bank independence months before he (Trump) showed up on CNBC to tell Joe Kernen how displeased he is with the Fed. Here’s a passage from something I wrote on February 13 for Dealbreaker:
I don’t think everyone fully appreciates how soon-to-be precarious this is going to get for ol’ Jay. Just imagine for a second that Trump’s myopic tax cuts and stimulus end up getting him the economic sugar high he’s after and just as he’s shrieking about it at a rally, the Fed hikes rates citing an overheating economy. Trump would go crazy. He would never let that stand. I’m telling you, he’s going to turn into Erdogan when it comes to rates.
Do me a favor and read the following quotes from a speech Erdogan made back in November when inflation was spiraling out of control in Turkey and the lira was plunging:
They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered. Results speak for themselves.
We will solve this, things can’t go on like this.
Who does that sound like to you? I mean besides Erdogan.
If you read the accompanying color from Bloomberg it’s even easier to imagine Trump going this route if Powell gets too aggressive. To wit:
Erdogan [is] vowing to step up a fight against what he calls the “interest rate lobby,” an alleged cabal of financiers and lobbyists that he says is conspiring to keep Turkey’s interest rates artificially high.
It’s almost too perfect a parallel. Before you know it, “the swamp” and the “American deep state” will include the Fed governors.
Don’t say I didn’t warn you.
Anyway, as maddening as it is to listen to, it’s handy that Erdogan’s desperate efforts to deny reality are playing out at the same time as Trump’s efforts to pretend like his tariffs aren’t having the effect they’re having.
Those interested in the long version can find it in “Who’s Really ‘Winning’ The Trade War? The Truth Behind The Rhetoric“, but suffice to say the damage from the tariffs on U.S. businesses is mounting in a hurry and nobody has been harder hit than America’s agricultural community.
On July 24, just three days before Trump held a press conference on the White House lawn celebrating second quarter GDP data that would have been just the fifth best quarterly print under Obama, the government announced a $12 billion rescue package for farmers suffering from the tariffs. That bailout entailed dusting off Depression-era policies to subsidize American agriculture. The circularity inherent in the effort was readily apparent both to lawmakers and to farmers themselves: Trump instituted trade policies that posed an existential threat to American agriculture and then, facing a severe backlash, decided to bail them out with their own taxpayer dollars. In the final insult, Trump peddled $45 “Make Farmers Great Again” hats on his website and, in a testament to the sad gullibility of the farm belt, they sold out within hours.
His efforts to downplay the damage to American agriculture often take the form of outright lies. For instance, on Thursday, Trump said this at one of his televised cabinet meetings:
Ok, for one thing, if you listen to the first three or four sentences there and don’t come away laughing at the sheer blatant absurdity inherent in Donald Trump repeating over and over again that he “loves his farmers” then frankly, there is no hope for you in terms of whether you’re capable of discriminating between propaganda and reality.
But beyond that, just take a minute to digest this quote:
They are, I hear, despite everything, they are starting to really do well. They got out there, like they are, they’re incredible patriots, but they’re incredible entrepreneurs, and they’re selling the coin, or the, the corn, and they’re selling the soybean and they’re selling everything at levels that are soon to be pretty good levels.
Is that right? Because data released by the Labor Department on Tuesday showed agricultural export prices slumping 5.3% in July from June – that’s the largest drop in nearly seven years.
And while Trump is correct to say that prices were falling long before he rechristened himself “Champion of Farmers”, the Bloomberg Agriculture Subindex has declined precipitously since May when the trade tensions with China began to heat up in earnest.
“American farmers are selling their corn and soybeans at ‘pretty good levels”, Bloomberg’s Chief Energy Correspondent Javier Blas wrote on Friday, quote-mocking Trump, before “harvesting” the following reality check and serving it farm-to-table for America:
Soybeans are down ~15% in last three months on US-China war. Corn down -12% in same period.
This is what I meant here at the outset when I said it’s no longer possible to give Trump and his surrogates the benefit of the doubt. It’s all lies. No different, in kind, than Erdogan’s attempts to convince Turks there’s no economic basis for the country’s woes when in fact there is.
And look, I’m not here trying to sell you my own version of reality – that’s the President’s job, whether you’re in Turkey or the United States. And God knows there are more than a few blogs and “alternative” news sources out there who will be more than happy to have your clicks if what you want is to be brainwashed.
I try to provide the other side of the story if there is one and in the interest of doing that here, I wanted to quote Deere CFO Raj Kalathur, who presumably knows a lot more than I do about trends in the agricultural market. Raj offered a reasonably upbeat take on things during Friday’s FY third quarter conference call. Here are the notable bits:
It’s important to note the continued demand for ag equipment even as the industry faces uncertainty around trade. While farmer sentiment remains dynamic in this environment, it is critical to remember that we are still in a replacement market and farmers have shown continued willingness to invest in technologies that enhance operational efficiencies and produce tangible economic results.
As global agricultural markets navigate uncertainty, the underlying fundamentals and tailwinds to our business model remain unchanged. Global demand for grains continues to grow consistently even as trade flow patterns readjust to accommodate various policy changes. Overall, we are encouraged by the outlook for the rest of 2018 and the early interest for our latest technology to come in model year ‘19 and we will continue to work on delivering strong results for the remainder of this year and beyond.
The situation right now is dynamic for the farmers and this can change. But as we see it right now the farm economic conditions between ‘19 you think about the crop fundamentals would actually strengthen for double crops like corn, wheat, cotton which outweigh soy situation, okay. And as result we forecast like total cash receipts a leading indicator for our large ag sales. For 2019 to be higher than for 2018, that would say absent all of these other noises that the demand will be up.
That’s a pretty rosy assessment under the circumstances, and who am I to argue with the CFO of Deere about farming?
Still, the reality of this situation as it currently stands is that Trump’s tariffs are hurting U.S. agriculture and everyone knows it, even the farmers who say they’re willing to “suffer to the death” for Trump.
Coming full circle, the overarching point in all of this is that to my mind, there’s really only one side to this story, where “this story” just means the story of the Trump administration’s economic and foreign policies.
But to the extent there are always “two sides to every story”, make sure you get the other side from folks like Deere executives and not from Larry Kudlow. Or Donald Trump. Or Trish Regan…