The US markets are on a tear, today the DOW hit another record at 27,843 but Europe and Asia did not take cue all closing down, the notable exception being the CAC that has broken its previous highs. The mini trade deal is dying... Trump called it a great deal even though it was not much of a deal at all, still, even this can't be agreed. A lot of hype about trade driving markets but this does not seem to be the case, US markets are making new highs in spite of trade. There is little to justify the sentiment driving markets higher. In 2018, 73% of company executives reported that their company’s overall performance exceeded that of the previous year, but in Q2 2019, that number had dropped to 68%, dropping further to 60% in Q3. While the sentiment is driving markets up, company performance is contracting. Although corporate health is still relatively solid, growth rates are declining, hiring rates are slowing, economic confidence is wavering, and companies are adjusting down their expectations for expansion in the coming year, also because the US has a dysfunctional government, an impulsive President and an idiot heading the Fed. Ironically, the only person caring about and keeping an eye on the US economy has shown to be too impulsive to enable corporations making long term decisions, and, in any case, is prevented from doing much by people in power more focused on removing him than caring about growth of the economy. There has to be a point when the reality of the fundamentals squash the inflated sentiment, I remain net short in the US.
Market irrationality at its best... Today we had consumer confidence & spending falling, Manufacturing output falling, GDP lowered to .3% for Q3 (annualized), Giuliani implicated and the 5th of Trump's advisors convicted, however, markets ignored all that and acted on reports that "phase 1 trade deal is close", something we been hearing like a broken record for 5 weeks. All the US Indices, as well as the CAC, hit new highs, closing the week on positive. Markets are rising on "fumes", I cannot see this continuing... "buy the rumour, sell the fact" looks likely when the results of the trade deals are announced... Phase 1 is hardly a deal at all.
Total Market Cap vs GDP reached 146.30% today. Sep 30, 2018 was at 146%. Market is getting closer to Mar 30, 2000 148.50% all time high. Bullish sentiment is above 40% for the fourth times over the past 52 weeks. https://ycharts.com/indicators/us_investor_sentiment_bullish Minsky moment? https://en.wikipedia.org/wiki/Minsky_moment
It does seem irrational, exaggerated and unsustainable. But bull markets tends to disregard bad news. I've lost count of how many times over these last 10 years I've expected a negative news item to move the market down and it barely winks... I wouldn't be surprised to see at least a minor correction soon, but as JMK said: "Markets can stay irrational longer than..."
A factor that could see China walk-out of trade negotiations altogether (and at worst even brake diplomatic ties between the two countries) is the USA interference in China's internal affairs. Some days ago I stated that Nancy won't be able to resist sticking her nose in the Hongkong events... well, now she's doing it.. she's preparing a bill that will officially put the USA on the side of the protesters, supporting their cause and supporting more democracy for Hongkong. I think Nancy is confused in possibly believing that Hongkong is Taiwan... Interfering directly within China's territory is not going to go well with China. Personally, I think that the protesters are also forgetting that Hongkong is Chinese territory, their demands can't, and won't, be accommodated within a communist regime, the USA taking sides will not further the protesters cause and is likely to put China on the defensive with the USA. Trump is somewhat correct saying that China is desperate for a trade deal... sure, China does not want to lose the cosy environment of being the main cog in America's supply chains, however, it had very thick red lines that are stronger than the USA knows. Trump is very wrong in imposing blanket tariffs, he should have had the wisdom to realize that China won't jump when told to jump, a quick resolution to IP issues with China's were never going to happen, China will change its way when it suites their 20 year economic plan and not when the USA wants a change. Trump's idea that he can change China's embedded economic structure is pie in the sky so when imposing tariffs, he should look at the impact on the USA, long term, and make decisions that hurt China, not the USA.... such as: Selective tariffs on manufactured goods, sparing hardship on US manufactures importing parts, Directives to gov. procurement not to buy Chinese goods, Ban IT imports altogether, etc. etc... think long term, Be smart, Not a bully.
It doesn't matter. If tariffs get cancelled, the market can go nowhere but up. Tariffs are still bearing a heavy weight on the global economy. I am surprised we are as high as we are, but now we got FOMO filling in some gaps. Markets want MORE expansion. Pullbacks in corporate investing are a direct result of this trade war shit. We need China more than they need us! Because the USA needs and wants it's cheep shit from China.
Cheap wiglets can be made elsewhere and so, the USA does not need China per se. Tariffs on the ready-made cheap crap are fine, these don't hurt America but hurt the Chinese economy, removing these does nothing for US industry and therefore no effect on US markets also. It's the unrestricted entry of US companies into the Chinese market that will move stocks up and for this, IP theft & protection has to be resolved i.e. China needs to behave as a developed nation, introduce and ENFORCE protection of IP. A more astute Trump could easily diminish the Effect of the trade war by being more selective on the tariffs imposes and by using other methods that are less disruptive to US industry.
Enforcing IP protections will raise the prices for the American consumer, because they are so used to paying for the cheep shit. The American consumer is the ultimate driver of the world economy. When the US consumer stops buying, the world is FUBAR.
Do I read this correctly... you are fine with American technology to be used by China for free so that they can make the product cheaper then take over the market the American inventor created? i.e. put the American Co out of business? or Do we force China to pay royalties, then, if they can produce cheaper at least the owner of the IP can survive on the royalty? R&D can be as much as 40% of the cost in running a Co. China steals the idea then produces the product for 40% less, is this what you are proposing so that the consumer enjoys cheaper prices?
Not exactly. What I am saying is...If China is prevented from producing cheep shit, like the iPhone, the prices of these products will rise to the point that Americans will stop buying them. An iPhone produced entirely in the US will cost a lot more than what Americans are used to paying, and the upgrade cycle will be lost. Consumers will then spend less, GDP goes down. Contractions ensue. Mass hysteria!