USD Soft Patch to Set the Stage for Another Grind Higher in Asset Prices and Interest Rates
China has decided it is time to pull away the punch bowl for a little while.
The most important inflation chart to focus on right now is producer prices in China.It provides a depiction what is happening with prices at the early stage of production in the largest exporter nation.
The politics of trade protectionism, nationalism, and anti-immigration are the match which will ignite dormant inflationary gasses bubbling underneath the surface after years of short-sighted monetary policy experiments.
“Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” Trump told The Journal, referring to competition from China. The Trump Administration wants to make America great again by transforming it into a manufacturing powerhouse like it was in the Post War glory days. Buy America, hire America. That’s not so bad really. Most Americans are generally on board with this patriotic slogan as long as its implications stop there. But then Mr. Trump takes things a step further with nonsense about the “strong dollar killing us.” By “us,” he means the 13% of the US economy reliant upon goods exports (as opposed to the other 87% more reliant upon domestic services and consumption). Mr. Trump surely isn’t referring to the more […]
If you must limit yourself to only two macro risks worthy of flaring up your insomnia they are these: 1.) Trade war contagion – Globalization and open borders are going out of style in mainstream developed market politics. Fast. In theory, trade reform can be targeted to narrow trade deficits, increase wages for the middle class, and make every developed country great again. In reality, there are tremendous risks of unintended consequences shaking the foundation of modern global economies. Modern economies function with tightly intertwined international supply chains. What would happen if every US import from Mexico, China, or even Germany rose in price by 15-20% at the stroke of a legislative pen? Would it really stop there? Would it not spark a wave of […]