Trade War Becomes Currency War 

Source: Wall Street Journal

“President Trump claims trade wars are easy to win, but that boast looks worse than ever amid the financial carnage from his latest threat of tariffs on Chinese goods. His trade war has now become a currency war, which raises the potential economic harm to another level. That was the ugly message Monday in financial markets, which sold off world-wide after China devalued the yuan following Mr. Trump’s threat of 10% tariffs on $300 billion in Chinese goods. Emerging-market currencies plunged, equity markets dropped 3% or so on the day, gold and the U.S. dollar soared as safe havens, and the 10-year Treasury yield fell to a stunningly low 1.74%. The washout followed China’s decision Monday to set its yuan-dollar peg below 7 to 1, its lowest level since 2008. Mr. Trump tweeted that this is ‘currency manipulation,’ but what did he expect? Late Monday the U.S. Treasury escalated the clash by officially calling China a currency manipulator, which could trigger more tariffs. But Beijing has an incentive to prevent any further devaluation to prevent capital flight….Where this currency convulsion ends is anyone’s guess. One of Mr. Trump’s trade conceits is that he can manipulate markets at will by dialing tariffs up or down. But currency markets have a tendency to overshoot and create unexpected casualties. Markets don’t know how much financial strain a company in Shenzhen can bear before it defaults on its dollar bonds, and Mr. Trump doesn’t know either.”

 

Gold Tops $1,500 

Source: Wall Street Journal

“Gold prices topped $1,500 a troy ounce for the first time in six years, driven higher by a drop in bond yields and investors’ flight from global stocks…Prices traded as high as $1,522.70 a troy ounce earlier in the session. Stoking the gains are renewed concerns that an intensified trade war between the U.S. and China will hurt already fragile global growth. Recent economic data has further fueled those fears – German industrial production figures for June, reported Wednesday, were much weaker than analysts expected, a sign that Europe’s largest economy continues to struggle. U.S. stocks were down sharply in recent trading, with the S&P 500 falling around 0.8%. Government bond yields around the world slid further on Wednesday after interest-rate cuts by three central banks exacerbated investors’ fears of slowing growth around the world, with the yield on 10-year Treasurys breaking below 1.6% earlier in the session….A popular destination for nervous investors, gold tends to attract buying during times of economic or political uncertainty. Prices are up more than 18% this year….’The collective mood is one where the trade war has taken on a different life,’ said Ira Epstein, a strategist with Linn & Associates. ‘There’s a lot of fear out there.'”

 

The superrich are selling stocks, buying properties and keeping cash ready 

Source: Marketwatch

“The superrich blueprint to navigating this hairy stock market: Tap the brakes and get ready to pounce when it all goes to hell. And by the looks of Monday’s action, hell might not be too far away. In the first quarter, Tiger 21, a coalition of 750 members worth in excess of $75 billion, raised cash to levels not seen since 2013….These deep-pocketed investors are continuing to move away from equities and build up their positions in real estate. As Tiger 21 President Michael Sonnenfeldt previously told MarketWatch, the stock market is ‘priced to perfection’ and rising economic inequality leading to greater polarization in America and elsewhere.'”

 

What the U.S. Government Isn’t Telling You About the Trade War With China 

Source: Bonner And Partners

“The whole ball of trade wars, Federal Reserve rate cuts, currency manipulation, inverted yield curves, and negative yields is so tangled up in deception and claptrap it is almost impossible to unravel….China is a key player in the whole worldwide bamboozle, wringing fake money out of debt-drenched consumers in Europe and America and spinning it into stocks, bonds… cement, steel… and even more factories and empty towns. Bringing China to its knees may be good for tweet-o-rama politics. It might even be doing the Chinese a favor… But it would be very bad for a world economy with $250 trillion of debt. It’s Inflate or Die. And the China trade is a key part of the inflation program. Both the U.S. and Chinese economies are built on debt. The U.S. creates fake money and lends it out; Americans spend it on Chinese-made goods; the Chinese economy, thus stimulated, builds more factories and produces more goods, further undermining U.S. manufacturing industries. When China goes down, most likely, the U.S. and Europe will too….This ‘manipulation’ charge is a good illustration for the whole fandango. Everything is manipulated, up is down, tomorrow is yesterday. Nothing is true. Nothing is straight. Nothing is what it pretends to be. How do you untangle this mess? What’s real? What’s going on?….If we’re right, real capital – gold – will become more valuable. Anti-capital – debt and wealth-destroying companies – will fall in value. And the Greed/Fear index will continue down until it finally completes its historic rendezvous with destiny. Then, you will once again be able to buy the entire Dow for five ounces of gold… or less.”

 

A second market sell-off could be ‘Lehman-like’ 

Source: Nomura/CNBC

“Investors shouldn’t take much solace from Tuesday morning’s slight rebound, says Nomura. They are warning the next sell-off could resemble a crisis-level plunge like the one that followed Lehman Brothers’ collapse. This view is much more catastrophic than the rest of Wall Street with most firms predicting a stock market correction (down 10%) at most and likely just a slight pullback. Nomura is basing its view on data showing hedge funds fleeing the market and said more are set to exit when their algorithms are triggered by rising volatility….’At this point, we think it would be a mistake to dismiss the possibility of a Lehman-like shock as a mere tail risk,’ Nomura macro and quant strategist Masanari Takada said in a note on Tuesday. ‘The pattern in US stock market sentiment has come to even more closely resemble the picture of sentiment on the eve of the 2008 Lehman Brothers collapse that marked the onset of the global financial crisis.’ The market plunge could arrive as soon as late August, Nomura predicted, as trend-following algo traders still have many bullish trades to unwind. ‘We would expect any near-term rally to be no more than a head fake, and think that any such rally would be best treated as an opportunity to sell in preparation for the second wave of volatility that we expect will arrive in late August or early September,’ Takada said. ‘We would add here that the second wave may well hit harder than the first, like an aftershock that eclipses the initial earthquake.'”

 

Currency War Begins: Chinese Yuan Crashes Past 7 To New Record Low 

Source: Zero Hedge

“China is firing all the big guns because just an hour after Beijing effectively devalued the yuan, when it launched the latest currency war with the US, Bloomberg reported that the Chinese government has asked its state-owned enterprises ‘to suspend imports of U.S. agricultural products after President Donald Trump ratcheted up trade tensions with the Asian nation last week.’ China’s state-run agricultural firms have now stopped buying American farm goods, and are waiting to see how trade talks progress. Translation: trade talks, even the fake kind, is now over, dead and buried, and the only question is how Trump will react… and sure enough, just a few hours alter in a dramatically unsettling move for global stability, China’s offshore yuan just collapsed below 7/USD – after the PBOC fixed the onshore yuan below 6.90 for the first time in 2019 – the currency plunging a stunning 12 handles to its weakest on record against the dollar as countless stop losses were triggered and thousands of traders were margined out….China’s central bank has confirmed…saying that it is able to keep the yuan exchange rate at a reasonable and balanced level – whatever that means – while acknowledging that the Yuan plunging beyond 7 per dollar is due to market supply and demand, trade protectionism and expectations on additional tariffs on Chinese goods. The carnage from yuan volatility is starting to spread… Chinese bond yields are tumbling.”

 

Global markets are in panic mode – sparking a wave of investment into gold, bonds and currencies 

Source: CNBC

“Global growth worries and an intensifying trade war between the world’s two largest economies sparked a stampede into perceived ‘safe-haven’ assets on Monday. Gold prices jumped more than 1% to hit their highest level in over six years on Monday, while the Japanese yen and core government bonds also rallied. It comes at a time of heightened volatility in financial markets, with the pan-European Stoxx 600 falling almost 2%. That’s on top of the 2.5% it lost on Friday – its worst day so far in 2019. The CBOE volatility index – known commonly as the VIX or Wall Street’s ‘fear gauge’ – climbed to its highest level since mid-May, while Europe’s equivalent reached its highest since early January. At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value – such as gold…Safe-haven assets are typically sought to limit one’s exposure to losses in the event of a sharp market downturn.”

 

Adding More Tariffs on Chinese Goods Seems Like a Great Way to Torpedo the Economy

Source: Slate

“On Thursday, Donald Trump announced that starting in September he would impose a new 10 percent tariff on goods from China, after trade talks with the People’s Republic apparently failed to make progress. He announced the tariff in a series of tweets… The new border taxes will apply to the $300 billion worth of Chinese goods that, until now, had not faced a tariff. Another $250 billion will continue to be tariffed at a 25 percent rate. This move comes at a sort of odd time. The U.S. economy has been looking fragile lately – bond markets are screeching in panic, GDP has slowed a bit, and business investment is drying up. Just about everybody agrees that the trade war is contributing at least somewhat to the uneasiness, though it’s hard to say precisely how much. When the Federal Reserve cut interest rates on Wednesday, Chairman Jerome Powell emphasized that the central bank was doing it in part to make sure that the trade war didn’t accidentally capsize the economy. (Or, as he put it, the move was meant to ‘ensure against downside risks to the outlook from weak global growth and trade tensions.’ Gotta love Fed speak.)….It will almost certainly be bad for the overall health of the economy, if only marginally so. So, what’s going on? One possibility is that Trump simply isn’t worried about the effect that his tit-for-tat with China is having on the economy and just wants to keep fighting it to the bitter end…But it’s also possible that this move is partly meant to scare the Fed into taking more action than it did Wednesday. Many investors (as well the president) were hoping that Powell would signal that the Fed intended to pursue an aggressive series of rate cuts. Instead, the chairman hinted that the central bank might only cut rates further if the outlook for the economy got worse and said that ‘trade tensions’ were one of the important factors that policymakers would monitor….When the Fed cuts, it tends to push down the value of the dollar, which makes Chinese imports more expensive to Americans and U.S. exports more affordable to the world. If increasing tariffs leads the Fed to cut rates and devalue the dollar as a result, it’s basically a two-for-one strike against Beijing.”



Families Go Deep in Debt to Stay in the Middle Class 

Source: Wall Street Journal

“The American middle class is falling deeper into debt to maintain a middle-class lifestyle. Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy. Consumer debt, not counting mortgages, has climbed to $4 trillion – higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding. Student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages. Auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187….The debt pile is also an accumulated ledger of economic risk. It should be manageable so long as unemployment remains low. If job losses begin to rise, it would become unsustainable for some share of borrowers, raising chances of an increase in missed payments and lenders writing off unpaid balances….In case of a broad economic downturn, people’s debt levels could weigh on the economy for an extended period, because people who carry a lot of debt into a downturn tend to rein in their spending for years afterward.”

 

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