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Tragically Apt

US equities struggled Friday as the Trump administration introduced fresh uncertainty into an already fraught macro environment.

The Commerce department’s move to effectively shut down WeChat in the US and freeze TikTok from Sunday, turned the dial up on the Sino-US tech war and raised questions about what many believed was a done deal between ByteDance and Oracle. The new prohibitions served as a rather stark reminder that nothing is ever certain when it comes to dealing with the current occupant of the Oval Office. Amusingly, iPhone downloads of WeChat surged in the wake of the new decree.

Trump is famously proud of his unpredictability, and while there is some evidence to support the notion that being mercurial is an asset, it can also be a liability, something market participants know all too well. Indeed, the last time the Nasdaq 100 fell for three consecutive weeks was during August of last year when Trump abruptly broke the Osaka trade truce with Xi Jinping, pushing the world’s two largest economies to the brink of an all-out trade war.

There was little in the way of news to suggest the fiscal stalemate in Washington is nearing an end. Nancy Pelosi hinted at possible changes to Democratic demands on Friday, emphasizing the necessity of assisting airlines and restaurants, but she seems dug in on the price tag. $2.2 trillion remains Democrats’ official final offer. Many Senate Republicans are equally stubborn on the other side, with some suggesting that no additional stimulus should be delivered.

Still, with Trump vocally in favor of a bipartisan compromise deal sporting a $1.5 trillion price tag, the door is at least cracked. Pelosi continues to insist that aid for state and local governments is a must and, in a somewhat ominous remark, said “something is not necessarily better than nothing” when it comes to aid. “When they come to the table” it will get done, Pelosi said, referencing the GOP.

Separately, lawmakers are still on track to pass a stopgap funding bill that will prevent a government shutdown.

The curve was essentially unchanged on the week, as the Fed meeting didn’t manage to generate much in the way of fireworks, other than the downside bias in equities triggered by Jerome Powell’s somewhat dour economic assessment and “failure” to convey an inclination for even more asset purchases on top of the existing $120 billion/month run rate.

“In the week ahead, the fundamental inputs will take a back seat to developments on the two major event risks left in 2020; the election and progress toward a vaccine’s implications for the path of the pandemic”, BMO’s Ian Lyngen, Jon Hill, and Ben Jeffery said, in a Friday afternoon note.

“While there aren’t specific known updates or revelations on either risk, the market’s collective expectations continue to be refined as the events near [even as] neither are associated with specific hard dates unless the election results are an uncontestable landslide”, they went on to say, adding that “as a result, the latent uncertainties will persist and in doing so contribute to the resilience of the trading range” in US rates.

Note that the assumption across desks is now that the results of the election will not be known on election night. How that is at all reconcilable with equities trading the most expensive in two decades is anyone’s guess.

I suppose you can simply fall back on TINA and liquidity provision, but it’s a long way down from here — even after this month’s mini-correction. And that’s to say nothing of the distinct possibility that earnings estimates for 2021 turn out to be too optimistic.

Both the S&P and the Nasdaq closed below their 50-day moving averages. Crude managed a gain for the week.

“At this point, monetary policy is not the most decisive factor”, Deutsche Bank’s Aleksandar Kocic said. “In its current form, it is likely to stay in place with possibly slight adjustments, and remain reactive to fiscal policy, which together with advances in vaccine developments, should remain the main drivers that would shape/influence the economy”.

“It is interesting that… investors have been dumping stocks. Some might tell you that the FOMC meeting failed to live up to lofty bullish expectations, but I would argue that stocks are trading on their own prospects and that the Fed does not play prominently in that equation”, former head of equity derivatives at RBC Kevin Muir remarked, in a note called “Forget The Fed”.

“All of this Fed-tea-leaves reading is interesting, but the market is overreacting to the importance of Fed policy. They aren’t the main player anymore”, Kevin added.

Consumer sentiment unexpectedly hit a six-month high in the preliminary print on The University of Michigan’s gauge for September. That sounds better than it is. The index is still bumping along in the same depressed range it’s been mired in since the onset of the pandemic.

“Over the next several months, there are two factors that could cause volatile shifts and steep losses in consumer confidence: how the election is decided and the delays in obtaining vaccinations”, the survey’s chief economist Richard Curtin said, adding that “while the end of the recession will depend on these non-economic factors, the hardships endured by consumers can only be offset by renewed federal relief payments”.

Hopefully, you’re getting the message. If not, here it is in three words: FISCAL, FISCAL, FISCAL.

On Friday afternoon, during a press conference convened for no readily apparent reason, Trump claimed there will be enough coronavirus vaccines for every American by April.

“I think distribution will go even quicker than most people think”, he said, at The White House. “In a short time, we will have a safe and effective vaccine and we will defeat the virus”.

Fingers crossed. Because so far, the virus is defeating us. As of Friday afternoon, 198,000 Americans had died of COVID-19.

The country is closing in on Civil War numbers, which seems tragically apt considering how polarized the nation is around issues of race and all manner of other societal inequities.

I suppose all we can do is hope (and pray) that the virus gets “tired of winning”.


16 comments on “Tragically Apt

  1. Emptynester says:

    The New York Times article published yesterday, and updated today, entitled “ China’s Communists to Private Business: You Heed Us, We’ll Help You” seems very ominous for US companies trying to generate/grow sales in China- or anywhere else China is targeting as “their growth areas”.

    Essentially, Xi is mandating that all private businesses in China are required to hire Communist party members, so that the Communist party can make sure that Chinese private companies do their part to promote Chinese companies in line with the Communist Party goals.

    This is absolutely to the detriment of US companies trying to do business in China. The Communist party would like to take (steal) technology/IP as cheaply as possible, continue to manufacture for US, but limit the opportunity for US companies to sell product in China (or anywhere else they have targeted).

    This might just be memorializing what was already happening- but definitely not good for US economic growth.

    • All of that is going on right here, in the United States, right now.

      This administration is turning American capitalism into a version of precisely what you are describing in China, mixed with Putin’s Russia. Most of what you said in that comment has been tried or done by the Trump administration vis-a-vis US companies.

      Let’s try a fun exercise. Replace “Communist Party” with “Trump administration” in your comment and you’ll discover that your remarks are still true.


      “…so that the Trump administration can make sure that US private companies do their part to promote US companies in line with the Trump administration’s goals”.

      I can give you a dozen examples of that including Twitter threats aimed at Harley and GM, just to name two of the most infamous examples. How, exactly, is Trump’s economic nationalism different from what you are describing in China? How are tariffs, protectionism, subsidies to failing industries, and on, and on, any different conceptually from what Xi is doing? Please, tell me. How is an agenda (Trump’s) which props up structurally uncompetitive industries in America conceptually different from China’s SOE policies? How is instructing Harley Davidson and GM on how to run their companies (which Trump has done repeatedly, using threats) different from what Xi is doing? I can (and will) roll out dozens of examples of this.

      Let’s try another one:

      “.. the Trump administration would like to take (steal) technology/IP as cheaply as possible”…

      Forcing ByteDance to sell TikTok to a US company that was founded by a Trump supporter and fundraiser is tantamount to extortion. What else would you call it? It’s also the very definition of forced technology transfer and IP theft. Trump is stealing technology and IP from a Chinese company. Period. It’s as plain as the nose on your face.

      Let’s go again:

      “…. are required to hire party members…”

      Steve Mnuchin’s terms for the Oracle deal include ensuring that everyone on the new company’s board (so, everyone on the proposed board of “TikTok Global”) is an American. Further, that board has to create a committee chaired by a person who reports directly to CFIUS. Guess who chairs CFIUS? Steve Mnuchin.

      Do you see what I’m saying?

      It is absolutely incredible that Americans do not see through these blatantly hypocritical maneuvers. Trump’s vision for corporate America is, in many ways, even more authoritarian than China’s command economy. Trump is running things like a straight-up autocrat. This is what an Erdogan does. This is what dictators do. They dictate terms. Just like Trump has dictated terms to GM, and Harley, and on and on. And do you know what happens when you don’t accept the terms? Well, you end up with a Justice Department probe on your hands (Google). Or an FTC probe on your hands (Facebook). Or you end up being the subject of relentless public bullying (Nike, Amazon, our own Post Office for god’s sake).

      And to continue:

      “… but limit the opportunity for Chinese and European companies to sell product in the US (or anywhere else they have targeted)”

      The Trump administration is doing that too.

      I sincerely hope you take a moment to reflect on this.

  2. Emptynester says:

    I do not disagree with anything you stated.

    However, even if the US reverses course and operates under an international “free trade” plan- will China do the same? Can we trust them?

    I am concerned that whoever is elected in November, the US and China are destined for a long term trade war.

    • mfn says:

      Already baked in the cake. And neither country will come out of it as the “winner.” Only losers in a trade war between two economic superpowers.

    • Emptynester says:

      Trump already took away the right for landlords to collect rent on properties that they own. I am definitely not happy about that- as I have repeatedly posted. You continue to assume that just because I do not hate everything Trump does that I am “pro- Trump”.

      If you go back over the years to comments I posted, I come from a libertarian perspective- which seems completely unattainable at this point- I will concede that!

      Socially liberal and fiscally conservative. I have no candidate.

    • That’s fine. But the fact is, you have, on any number of occasions, left comments on articles here that perpetuate anti-China talking points.

      It’s a pattern.

      Which is why I took the time to address it in the lengthy response above. Normally, my lengthy responses are confined to posts about MMT, but at this crucial juncture in US history, I want to ensure that this platform does not become a place where intolerance of other human beings finds a home.

      I’ve gone out of my way in these pages over the course of the trade war to emphasize that the US does indeed have legitimate national security concerns when it comes to Beijing. That is well established.

      However, repetitious parroting of veiled xenophobia and the perpetuation (even if unintentional) of “us versus them” rhetoric which paints Chinese as somehow an inherently suspicious or fundamentally untrustworthy people, is not something that I will countenance in these pages.

      (As an addendum, the Party’s activities in Xinjiang — i.e., the Uighur situation — is quite obviously egregious, indefensible, and an entirely different subject. Here I’m speaking to the tech cold war, the economic spat, overblown fears that PLA operatives are everywhere, etc. and what I want folks to avoid are generalizations about Chinese people as a group)

  3. MMcCann says:

    “The country is closing in on Civil War numbers…” Perhaps a little relative context is in order. I know your chart shows only (estimated) military deaths. Total Civil War-related deaths (civilian included) are estimated at 650,000+ on an estimated 1865 US population of ~31.5 million (so ~2.1%). Of course this should never happen, but we really will reach Civil War-level suffering unless US COVID-19 deaths approach 6.75 million…

    • calh0025 says:

      I mean yes and no… I would also posit that civil war society was far more resilient given the largely agrarian nature. Additionally a death is a death… it affects the families every bit as much, the country is not a conscious entity experiencing suffering. It will certainly not be a proportional level of death but it should be more than enough suffering and damage to leave an impact history will not soon forget.

      We could certainly see 2% if things linger on 4 years. We’ll know more as this winter brings the disease to bear upon a world that still thinks the worst is in the past. I have no hopes this will hold true given the nature of aerial respiratory viruses.

  4. Just heard that Ruth Bader-Ginsberg passed away tonight. Another tragedy of epic proportions if Trump appoints another favored son.

  5. George says:

    A lot of interesting comments on this all having some level of truth..The US is confronted with a capable adversary in this case …finally..!
    The base sees a terminal struggle and thus the Xenophobia that comes naturally when this crisis becomes seemingly existential … To characterize this as a no win can in fact not necessarily correct because the end result could be a totally different environment than we are and have been in for the last seven decades . The political system here is skating on thin ice and is broken thus has to be mended so the opposing parties can agree on something (not nothing) …. Only at that point will there NOT be a changing of the guard ( Financial Leadership and inevitable Status of the World Power Base)

  6. John Banjo says:

    I believe America has been in a “high tech civil war” for many years now; it may get worse.

  7. Jose Diaz says:

    One of the best commentary sections I’ve read on here in a while.

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