As this article is being written, the S&P 500 has achieved a new all-time high. The question is, why? A recent Fox News poll indicates that a majority of American citizens feel the President is going to be impeached and removed from office. Nevertheless, in a grand “deal-making” press conference today, the President announced that “Phase One” of the China trade agreement, which was 90% completed in May before a blame-game and tit-for-tat tariff exchange ensued, could be signed in Chile at the upcoming Asia-Pacific Economic Cooperation summit “if everything goes smoothly.” Yet, follow-up conversations since the announcement from both sides indicate that necessary ingredients may not be ready in time to meet that signing date goal.
Regardless, the Phase One “agreement” has to be considered a huge disappointment. During September and the beginning of October, both sides saw their economies suffer quite visible signs of distress, as China took offense to every aspect of American policy and interference, particularly from the NBA and talk of congressional passage of the Hong Kong Human Rights and Democracy Act of 2019. Moreover, due to the escalating U.S. weaponization of policy, China felt threatened; in capital controls, the delisting of Chinese companies trading on American exchanges, an expansion of blacklisted firms on the “Entity List,” and new visa restrictions. All of which is expected to further slow the economies of both countries, reducing China’s GDP for the year by an estimated .4% and U.S. GDP by .2%. The agreement accomplished practically nothing and did not address non-tariff barriers, or a conflict-resolution framework to address problems ranging from alleged intellectual-property theft to forced technology transfers.
In addition, Phase One stipulates no clarity or agreement on enforcement and only vaguely describes Chinese intentions to purchase $40-$50 billion in U.S. agricultural products, nebulous initiatives on IP protection and financial sector liberalization, and an equally nebulous agreement on currency manipulation. For the agreement, China gets a reprieve on a new $250 billion round of tariffs that were scheduled to take effect on October 1. And in spite of all this, the stock market looked the other way and soared in advance of the days leading up to the October 11 announcement, buoyed up primarily on continuing foreign investment and company stock buyback programs. With the Fed most probably reducing interest rates by .25% at the end of the current FOMC meeting, more ether will be released into the market and the propensity for an even greater and more precipitous market drop looms larger than ever.
The problem with the American approach, from the beginning, has been and remains the attempted application of bilateral remedies to multilateral problems. Multilateral solutions need to be aimed at the underlying macroeconomic imbalances, which might be addressed with a rebalancing of saving disparities or a bilateral investment treaty between two countries that operate on opposite ends of the saving spectrum. The continuing and growing U.S. addiction to credit is a huge and completely unaddressed factor in any potential solution. America’s ignorance of this fact is becoming extremely expensive, which makes ownership of physical precious metals more important than ever before, in order to protect assets, families, and legacies.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.