How Chinese Trade Issues Will Drive Market Trends

It is becoming evident that the US/Chinese trade issues are going to become a point of contention for the markets going forward. We’ve been review as much news as possible in an attempt to build a consensus for the future of the U.S. markets and global markets. As of last week, it appears any potential trade deal with China has reset back to square one. The news we are reading suggests that China wants to reset their commitments with the US, remove all tariffs and wants the US to commit to buying certain levels of Chinese goods in the future. Additionally, China has yet to commit to stopping the IP/Technology theft from U.S. companies – which is a very big contention for the US.

This suggests the past 6+ months of trade talks have completely broken down and that this trade issue will likely become a market driver over the next 12+ months. The global markets had anticipated a deal to be reached by the end of March 2019. At that time, Trump announced that he was extending talks with China without installing any new tariffs. The intent was to show commitment with China to reach a deal at that time – quickly.

It appears that China had different plans – the intention to delay and ignore U.S. requests. It is very likely that China has worked to secure some type of “plan B” type of scenario over the past 6+ months and they may feel they are negotiating from a position of power at this time. Our assumption is that both the U.S. and China feel their interests are best served by holding their cards close to their chests while pushing the other side to breakdown through prolonged negotiations.

Our observations are that an economic shift is continuing to take place throughout the globe that may see these US/China trade issues become the forefront issue over the next 12 to 24 months – possibly lasting well past the November 2020 US Presidential election cycle. It seems obvious that China is digging in for a prolonged negotiation process while attempting to hold off another round of tariffs from the US. Additionally, China is dealing with an internal process of trying to shift away from “shadow banking” to eliminate the risks associated with unreported corporate and private debt issues.

The limited, yet still valid, resources we have from within China are suggesting that layoffs are very common right now and that companies are not hiring as they were just a few months ago. One of our friends/sources suggested the company he worked for has been laying off employees for over 30 days now and he just found out he was laid off last week. He works in the financial field.

We believe the long term complications resulting from a prolonged U.S./China trade war may create a foundational shift within the global markets over the next 16 to 24+ months headed into the November 2020 U.S. Elections. We’ve already authored articles about how the prior 24 months headed into major U.S. elections tend to be filled with price rotation while an initial downside price move is common within about 16+ months of a major US election event. This year may turn out to prompt an even bigger price rotation.

U.S. Stock Market volatility just spiked to levels well above 20 – levels not seen since October/November 2018, when the markets fell nearly 20% before the end of 2018. The potential for increased price volatility over the next 12+ months seems rather high with all of the foreign positioning and expectations that are milling around. It seems like the next 16+ months could be filled with incredibly high volatility, price rotation and opportunity for skilled traders.

Our primary concern is that the continued trade war between the U.S. and China spills over into other global markets as a constricted price range based trading environment. Most of the rest of the world is still trying to spark some increased levels of economic growth after the 2008-09 market crisis. The current market environment does not settle well for investor confidence, growth, and future success. The combination of a highly contested U.S. Presidential election, US/China trade issues, a struggling general foreign market, currency fluctuations attempting to mitigate capital risks and other issues, it seems the global stock markets are poised for a very big increase in volatility and price rotation over the next 2 years or so.

Our first focus is on the Hang Seng Index. This Weekly chart shows just how dramatic the current price rotation has been over the past few weeks and how a defined price channel could be setting up in the HSI to prompt a much larger downside objective. Should continue trade issues persist and should China, through the course of negotiating with the U.S., expose any element of risk perceived by the rest of the world, the potential for further price contraction is very real. China is walking a very fine line right now as Trump is pushing issues (trade issues and IP/Technology issues) to the forefront of the trade negotiations. In our opinion, the very last thing China wants is their dirty laundry, shady deals and political leadership strewn across the global news cycles over the next 24+ months.

The DAX Weekly Index is showing a similar price pattern. A very clear upper price trend channel which translates into a very clear downside price objective is price continues lower. Although the DAX is not related directly to the US/China trade negotiations, the global markets are far more interconnected now than ever before. Any rotation lower in China will likely result in a moderate price decrease in many of the major global market indexes.

As we’ve suggested within our earlier research posts, U.S. election cycles tend to prompt massive price rotations when the election cycles are intense. In our next post PART II of this report, we talk about what happened in the past election cycles reviewing the monthly charts and weekly SP500 index charts which are very telling in what could be about to happen next for the stock market from an investors standpoint.

For active swing traders, you are going to love our daily trading analysis. On May 1st we talked about the old saying goes, “Sell in May and Go Away!” and that is exactly what is happening now right on queue. In fact, we closed out our SDS position on Thursday for a quick 3.9% profit and our other new trade started Thursday is up 18% already.

Second, my birthday is only three days away and I think it's time I open the doors for a once a year opportunity for everyone to get a gift that could have some considerable value in the future.

Right now I am going to give away and shipping out silver rounds to anyone who buys a 1-year, or 2-year subscription to my Wealth Trading Newsletter. I only have 7 left as they are going fast so be sure to upgrade your membership to a longer term subscription or if you are new, join one of these two plans, and you will receive:

One Year Subscription Gets One 1oz Silver Round FREE (Could be worth hundreds of dollars)

Two Year Subscription Gets TWO 1oz Silver Rounds FREE (Could be worth a lot in the future)

I only have 13 more silver rounds I’m giving away ​​​​​​​so upgrade or join now before it's too late!

SUBSCRIBE TO MY TRADE ALERTS AND GET YOUR FREE SILVER ROUNDS!

Happy May Everyone!

Chris Vermeulen
Stay tuned for PART II next!

This “False Flag” in Syria Could Launch World War 3

By Nick Giambruno

The classic movie Fast Times at Ridgemont High offers a crash course in geopolitics. One of the characters plays on the high school football team and drives a fancy sports car. At one point, his little brother’s friend accidentally trashes the car. Terrified, they come up with a clever plan to shift the blame. They decorate it in the rival football team’s colors to make it look like the rival team vandalized the car.

Their plan works....This is called a false flag. It’s an incident designed to trick people into thinking someone else carried it out. The world’s intelligence services have long used the same tactic to nefarious effect.

Truth Is the First Casualty

Last week, dozens of people died in a chemical weapons attack in a rebel-held area in northern Syria. Syria’s president, Bashar al-Assad, denied responsibility. Many believe the attack was a false flag designed to pull Trump deeper into the Syrian catastrophe. It’s just the latest in a number of suspicious incidents. A few years ago, a conversation between high ranking Turkish military officials was leaked. They were discussing how to use a false flag as a pretext to invade Syria.

Then there was an infamous incident in 2013. The Assad government crossed Obama’s “red line” when it allegedly launched a nerve gas attack near the Syrian capital of Damascus. This nearly led to an overt war. Some had very serious doubts about the incident. Obama’s own Director of National Intelligence—James Clapper—told him the evidence was not a “slam dunk.” This was one of the main reasons Obama decided not to attack Assad. Since then, famed investigative journalist Seymour Hersh has revealed that the 2013 incident was likely a false flag.

Based on this history, you would think the latest attack deserved a little more scrutiny. Assad—who is winning the fight in Syria—had little incentive to launch the chemical attack. And why would he do it mere days after the US government had dropped its “Assad must go” slogan for the first time since the crisis began in 2011? At that moment, a chemical attack would have risked all of Assad’s hard won gains. It was the very thing that could reverse it all.

I don’t see any reason for him to do that. It wouldn’t make any sense. On the other hand, the-not-so-moderate rebels and their backers had all the reasons in the world. It wouldn’t be the first time they’d considered using a false flag in Syria.

“On the Verge of a Military Clash With Russia”

Russia’s prime minister, Dmitry Medvedev, recently made an important statement regarding all of this. Unfortunately, the mainstream media totally ignored it.

Here’s what he said:

That’s it. The last remaining election fog has lifted. Instead of an overworked statement about a joint fight against the biggest enemy, ISIS, the Trump administration proved that it will fiercely fight the legitimate Syrian government, in a tough contradiction with international law and without UN approval, in violation of its own procedures stipulating that the Congress must first be notified of any military operation unrelated to aggression against the US. On the verge of a military clash with Russia.

Nobody is overestimating the value of pre-election promises but there must be limits of decency. Beyond that is absolute mistrust. Which is really sad for our now completely ruined relations. And which is good news for terrorists. One more thing. This military action is a clear indication of the US President’s extreme dependency on the opinion of the Washington establishment, the one that the new president strongly criticised in his inauguration speech.

Soon after his victory, I noted that everything would depend on how soon Trump’s election promises would be broken by the existing power machine. It took only two and a half months.

If the chemical attack was a false flag, it sure seems to have worked.

As tensions between the US and Russia continue to escalate, the US is barreling full speed toward a major, unprecedented crisis. If you don’t act now, there’s a good chance this crisis will destroy much or all of your hard earned savings.

New York Times best-selling author Doug Casey and I put together this urgent new video with unique information on how to protect yourself. Click here to watch it now.

Nick Giambruno

The article This “False Flag” in Syria Could Launch World War 3 was originally published at caseyresearch.com

The First Ever ‘Codeword’ Leak

By Porter Stansberry 

Today, an emerging story about the secret civil war being waged right now in Washington D.C. It is about to have a HUGE impact on our country. Two warnings before we begin. First, what I know so far is deeply troubling. We're approaching what will be the most dangerous period in our country's political history since the Great Depression. What could happen next scares me. But I continue to be optimistic that what will unfold will be great for our country.

Also, I'm certain that you simply won't believe much of what you'll read in today's essay. In fact, until I did my own follow-up research to verify what I could from my sources, I disregarded this story as "political nonsense" or just another D.C. conspiracy theory. Besides… it was all too horrible to believe. But then… almost everything my sources told me would happen started happening.…

Let's begin here.…
Did you know the U.S. government has a secrecy designation so restricted that virtually nobody – not even lifetime members of the intelligence community – even knows what it's called? It's not "TOP SECRET." It's way beyond that level. In late 2009, President Obama created this new level of secrecy inside our government with an executive order (No. 13526) – so Congress never approved it. Administered by the CIA, this new level of secrecy has created a covert government within the government that almost nobody knows and absolutely nobody is monitoring.

If you've ever heard the term the "Deep State" – the secret government within the government that actually holds power – then you know why a level of secrecy beyond "top secret" is so important. This new, more restricted level of secrecy was created so that the most powerful leaders of our government could communicate in total isolation. This level of secrecy is such a closely guarded secret that the name of the program itself is classified – and divulging the name is a crime, punishable by at least 10 years in a secret prison. So this level of security clearance is known only as "codeword."

At the highest levels of our D.C. government, only two dozen or so people have codeword clearances.…
I learned about this earlier this month. I was invited to lunch with someone who has held that level of security clearance. He told me about the existence of the codeword-level program. This isn't a rumor. It's a fact. For the last 30-plus years, my source has worked for and around the highest levels of our government. He is currently regarded as the president's most likely choice to become our next Federal Reserve chairman. Today, however, his clients include the world's top hedge fund managers and the leaders of America's biggest corporations. He is, in short, America's corporate representative of the Deep State.

We call him the "Metropolitan Man."

We met about a year ago. He reached out to me through a mutual friend – one of the best, young hedge fund managers in New York. He asked me to join him for dinner at the Metropolitan Club in New York, one of the most elite clubs in the United States. (Legendary banker J.P. Morgan founded the club. It's where billionaire investor Warren Buffett held his 50th birthday party. And it sits at the southeast corner of Central Park, across from The Plaza Hotel, with a great vista of Columbus Circle.) At the time, the Metropolitan Man was forecasting correctly that the world's central bankers and their negative interest rate policy were failing and that they would soon trigger a global run out of paper money and into gold. Over the next several months, gold and gold stocks soared (as you may remember).

A few days ago, the Metropolitan Man asked to see me again.…
He wanted to talk about something he had never seen before in all his years working in the government. For the first time ever, a codeword-level secret was leaked to the press. Nothing this sensitive has ever been leaked before – ever. Among senior leaders in D.C., it is widely believed that the director of the CIA himself was responsible for the codeword leak. And the rumor is that this information was then passed to the press through New York Senator Chuck Schumer's office. What was leaked?

A codeword secret briefing the CIA produced about a meeting in Trump Tower last December between a Russian ambassador and two senior Trump administration officials – Jared Kushner and Michael Flynn.
When Flynn lied about the meeting to the White House staff, he was fired. But the deeper question is: How did the CIA know about the meeting? How did it know how long the meeting lasted? How did it know exactly what was discussed? And how did that information end up in the hands of a New York Times reporter?

This backstory explains how Trump knows the CIA was spying on Trump Tower. And the counternarratives – Trump's claim that Obama was spying on him and the Democrats' claim that Trump is in league with Russia – are the beginning of a serious war. A civil war inside the Deep State itself.

Reading the newspapers won't explain how this war is being fought.…
They will never publish a clear explanation of the battle lines – or even who is fighting or why. But the outcome of these battles is likely to determine the fate of our economy for the next several decades. Let me explain why and tell you what this fight is really about. For the last 40 or so years, the U.S. economy has been built around a model that created vast power in D.C. The model has a few important components.

First, we have a highly "progressive" income tax. That ensures that anyone who makes high wages will pay for the lion's share of the government's expenses. Without extremely progressive income tax rates – where about half the country pays nothing and the top 10% pay for roughly 80% – the electorate would never continue to vote for more and more government. But it does, mostly because it doesn't have to pay for it.

Second, the government has an incredibly powerful regulatory regime in place. This allows D.C. to essentially control vast segments of our economy. Take Wall Street, for example. Who gets to sell a bond or a stock to the public? Nobody the Securities and Exchange Commission doesn't like (i.e. yours truly). This power results in tremendous amounts of "tribute" – legal fees, fines, and hidden lobbying that flows into D.C. and feeds its economic ecosystem.

And finally there's the North American Free Trade Agreement (NAFTA) and "free" trade. Our country has the ability to export all of the inflation generated by our central bank. This has led to decades of lower and lower interest rates and the government's ability to borrow essentially endless amounts of money without any serious inflationary consequences. These three components form the foundations of Washington's power.

Attack any of them and you risk a huge fight with the Deep State. What Trump is doing right now via his border adjustment tax, additional tax reform, and regulatory rollback is targeting all three of them at the same time. If he wins, all of the power that has been consolidated in D.C. over the past 40 years will evaporate.

Trump has put a metaphorical gun to the head of the Deep State…
And now, the Deep State is fighting back, tooth and nail, to protect the system it has built. Look at what has happened to the middle class in America over the last 40 years. Did NAFTA prevent price inflation by allowing America's consumer economy the luxury of accessing the world's cheapest labor? Yes, it did. But the flip side was devastating to the entire manufacturing industry in the U.S. And where did the resulting wealth flow? To D.C. and to the top 1% of America's wealthiest people who were able to access foreign markets and shield the resulting income from America's tax system.

Meanwhile, America remains the only industrial country in the world with global income taxation (you have to pay federal income tax, no matter where you live) and without a value-added tax. In short, we've chosen a system that punishes wage earners, while rewarding individuals and corporations who use overseas labor. The result has been a decline in real, after-tax wages over the last 40 years. That's a recipe to destroy the middle class – and that's what has happened.

Trump's plan to effectively lower income taxes to 25% and implement a value added tax to discourage foreign production of U.S. products will turn this entire economic structure on its ear and disenfranchise the Deep State that controls it. The winners will be the middle class, small business owners, wage earners, and America's manufacturing base. The losers? Those who have invested heavily in the current Deep State regime.

Why is this scary?
Well, unlike the health reform issue, the Metropolitan Man assured me that Trump's tax reform agenda would certainly pass. "It's a done deal," he said. He told me that his job lately "has been to help major corporations understand what will be in the new laws and how they will impact various markets." That means the Deep State has been pushed into a corner. What it might do next, no one knows. "That it would leak a codeword secret. Well, I would have told you that couldn't happen. I've never seen it before, not in more than 30 years in D.C. It's scary because if it'll do that, it'll do anything. Stage a terrorist attack? Start a war with China? Nothing is impossible anymore."

That's the downside. The next several months could see our government erupt into open civil war. The FBI accusing the president of treason… The president accusing a director of the CIA of breaking the law and having him arrested. Who knows where this will lead? On the other hand, assuming the government doesn't collapse into a civil war, Trump's new economic model will become a reality before the end of the year. For some industries (and for most Americans) these changes will bring massive prosperity. And for others – especially for companies and individuals who have been living at the government trough, tough times are looming.

Here's the best part.…
I believe these coming changes are so important and could lead to so much wealth creation that I've convinced the Metropolitan Man to come forward.

We will hold a meeting with him, at our offices in Baltimore, on April 5, 2017.
The meeting with start at 8 p.m. Eastern Time. It will last approximately two hours. Security will be very tight, so plan to arrive early. Everyone will be searched. At this meeting, the Metropolitan Man will "take off his mask" and tell you about his role in the Deep State. He'll explain the importance of the codeword-secret leak. And he'll discuss what the new Trump economic model will mean for various industries and parts of our country. He'll also explain how he knows the tax reform/border adjustment laws are certain to pass Congress and what those policies will mean for our country. If you'd like to attend the meeting via a live conference call, you can listen for only $19.95. Yes, that's right. $19.95.

This is easily the most important and valuable meeting I've ever arranged. 
It has taken more than a decade of work to gain access to information like this… And I want you to benefit from the incredible access we've gained. For successful investors and wealthy business leaders, meeting the Metropolitan Man in person and having the opportunity to ask him questions is invaluable. His normal consulting fee is $250,000. So I believe there's tremendous value at both price points. But no matter how you plan to attend, please do whatever you must to be at this meeting. There isn't a more important event you could attend this year.

Sign Up Here

Regards,
Porter Stansberry

The article The First-Ever ‘Codeword’ Leak was originally published at caseyresearch.com

Forget Dow 20,000… This Indicator Tells the Real Story

By Justin Spittler

It finally happened. For the last six weeks, the Dow Jones Industrial Average has been bumping against a ceiling. Yesterday, it broke through. The Dow topped 20,000 for the first time ever. Most investors are excited about this. After all, 20,000 is a big, round number. It feels like a psychological win for the bulls.

But it’s not an invitation to dive into stocks…not yet, at least. We need to see if the Dow can hold this level.
If it closes the week above 20,000, stocks could keep rallying. If it doesn’t, nothing has really changed. It could even be a warning sign. Until then, sit tight. Don’t chase stocks higher…stick to your stop losses…and hold on to your gold.

Don’t lose sight of the big picture, either.…

Remember, U.S. stocks are still very risky:

➢ They’re expensive. The S&P 500 is trading at a cyclically adjusted price-to-earnings ratio (CAPE) of 28.4. That means large U.S. stocks are 70% more expensive than their historical average.

➢ We’re still in a profits recession. Profits for companies in the S&P 500 stopped growing in 2014.

➢ And Donald Trump is president of the United States. Trump could do wonders for the economy and stock market. But he could also unleash a major financial crisis. It's still too early to tell.

As you can see, "Dow 2,000" isn't necessarily a reason to celebrate. In fact, as we told you two weeks ago, there's something much more important you should be watching right now.

The bond market is flashing danger.…
The bond market is where companies borrow money. It’s the cornerstone of the global financial system.
It’s also bigger and more liquid than the stock market. This is why the bond market often signals danger long before it shows up in stocks.

The bond market started to unravel last summer.…
Just look at U.S. Treasury bonds. In July, the 10-year U.S. Treasury hit a record low of 1.37%. Since then, it’s nearly doubled to 2.55%. This is a serious red flag. You see, a bond’s yield rises when its price falls. In this case, yields skyrocketed because bond prices tanked. The same thing has happened in long term Treasury, municipal, and corporate bonds.

Bill Gross thinks bonds are entering a long-term bear market.…
Gross is one of the world’s top bond experts. He founded PIMCO, one of the world’s largest asset managers. He now runs a giant bond fund at Janus Capital. Two weeks ago, Gross said the bull market in bonds would come to an end when the 10-year yield tops 2.6%. Keep in mind, bonds have technically been in a bull market since the 1980s.

According to Gross, this number is far more important than Dow 20,000. And we’re only 50 basis points (0.5%) from hitting it. In other words, the nearly four-decade bull market in bonds could end any day now.
When it does, Gross says bonds will enter a secular bear market... meaning bonds could fall for years, even decades. This is why Casey Research founder Doug Casey has urged you to “sell all your bonds.”

If you haven’t already taken Doug’s advice, we encourage you to do so now.…
You should also take a good look at your other holdings. After all, problems in the bond market could soon spill over into the stock market. If this happens, utility stocks could be in big trouble. Utility companies provide electricity, gas, and water to our homes and businesses. They sell things we can’t live without. Because of this, most utility companies generate steady revenues. This helps them pay dependable dividends.

Many investors own utility stocks just for their dividends.…
That’s why a lot of people call them “bond proxies.” Utility stocks don’t just pay generous income like bonds, either. They also trade with bonds. You can see this in the chart below. It compares the performance of the Utilities Select Sector SPDR ETF (XLU) with the iShares 20+ Year Treasury Bond ETF (TLT). XLU holds 28 utility stocks. TLT holds long-term Treasury bonds. XLU has traded with TLT for the better part of the last year. Both funds crashed after the election, too. But XLU has since rebounded.

You might find this odd. After all, the two funds basically moved in lockstep until a couple months ago.
But there’s a perfectly good explanation for this.…

Utility stocks pay more than Treasury bonds.…
Right now, XLU yields 3.4%. TLT yields 2.6%. That might not sound like big deal. But those extra 80 basis points (0.8%) provide a margin of safety. You see, the annual inflation rate is currently running at about 2.1%. That means the U.S. dollar is losing 2.1% of its value every year.

That’s bad news for everyday Americans. It’s also bad for bondholders. It means investors who own TLT are earning a “real” return (its dividend yield minus inflation) of 0.5%. Meanwhile, you’d be earning a real return of 1.3% if you owned XLU. Of course, utility stocks should pay more than government bonds. They’re riskier, after all. Unlike the government, utility companies can’t print money whenever they want. If they run into financial problems, they could go out of business.

Today, investors don’t seem to mind taking on extra risk for more income. But that could soon change…

Inflation could skyrocket under Donald Trump.…
If you’ve been reading the Dispatch, you know why. For one, Trump wants to spend $1 trillion on infrastructure projects. While this could help the economy in the short run, the U.S. government will have to borrow money to fix the country’s decrepit roads, bridges, and power lines. This would likely produce a lot more inflation. If that happens, real returns could shrink even more. And that could trigger a selloff in utility stocks and other "bond proxies," like telecom and real estate stocks. In short, if you own these types of stocks just for their dividends, you might want to consider selling them now.

We recommend sticking to dividend-paying stocks that meet the following criteria.…
The company should be growing. If it isn’t, you probably own the stock just for its dividend. That’s a bad strategy right now. It should have a low payout ratio. A payout ratio can tell us if a company’s dividend is sustainable or not. A payout ratio above 100% means a company is paying out more in dividends than it earns in income. Avoid these companies whenever possible.

It shouldn’t depend on cheap credit. After the 2008 financial crisis, a lot of companies borrowed money at rock-bottom rates to pay out dividends. If rates keep rising, these companies could have a tough time paying those dividends. If you own stocks that check these boxes, your income stream should be in good shape for now.

Chart of the Day

“Trump Years” stocks are on a tear. We all know U.S. stocks took off after the election. But some stocks did better than others. Bank stocks spiked on hopes that Trump would deregulate the financial sector. Oil and gas stocks rallied because Trump is pro-energy. Industrial stocks have also surged since Election Day.

Industrial companies manufacture and distribute goods. They include construction companies and equipment makers. E.B. Tucker, editor of The Casey Report, thinks these companies will stay very busy while Trump rebuilds America’s hollowed out economy.

He’s so sure of it that he recommended four “Trump Years” stocks last month. One of those stocks is up 11% in just six weeks. Yesterday, it spiked 8% after the company crushed its fourth quarter earnings report.
The company announced higher sales, fatter profits, and lower taxes. It raised its guidance for the year. In other words, it expects to make a lot more money this year…now that Trump’s in charge.

You can learn about this company and E.B.’s other “Trump Years” stocks by signing up for The Casey Report. Click here to begin your free trial.

The article Forget Dow 20,000… This Indicator Tells the Real Story was originally published at caseyresearch.com.

One Big, Fat, Ugly Bubble

By Nick Giambruno

The establishment is setting up Donald Trump. The mainstream media hates him. Hollywood hates him. The “Intellectual Yet Idiot” academia class hates him. The CIA hates him. So does the rest of the Deep State, or the permanently entrenched “national security” bureaucracy. They did everything possible to stop Trump from taking office. None of it worked. They fired all of their bullets, but he still wouldn’t go down.

Of course, the Deep State could still try to assassinate Trump. It’s obvious the possibility has crossed his mind. He’s taken the unusual step of supplementing his Secret Service protection with loyal private security.
The Deep State’s next move is to pin the coming stock market collapse on Trump. When people think “Greater Depression,” they’ll think “Donald Trump.” 

The economy has been on life support since the 2008 financial crisis. The Fed has pumped it up with unprecedented amounts of “stimulus.” This has created enormous distortions and misallocations of capital that need to be flushed. Think of the trillions of dollars in money printing programs—euphemistically called quantitative easing (QE) 1, 2, and 3.

Meanwhile, with zero and even negative interest rates in many countries, rates are the lowest they’ve been in 5,000 years of recorded human history. This is not hyperbole. We’re really in uncharted territory. (Interest rates were never lower than 6% in ancient Greece, and ranged from 4% to over 12% in ancient Rome.) The too big to fail banks are even bigger than they were in 2008. They have more derivatives, and they’re much more dangerous.

If the Deep State wants to trigger a stock market collapse on par with 1929, it just has to pull the plug on the extraordinary life support measures it’s used since the last crisis. It’s already baked in the cake. It’s just a matter of when they decide to trigger the controlled demolition. Donald Trump is the perfect fall guy. And there are signs the Deep State is already starting to get its revenge. The most important variable to watch is the Federal Reserve—the quintessential establishment institution.

Source: Ben Garrison

Even though most politicians, economists, and pundits in the mainstream media won’t admit it, central banks exist to help governments finance themselves, at the expense of the average man. It’s the hidden, but real, reason they exist. The Fed accommodated Obama—effectively financing his regime’s deficits by creating new currency units. I doubt they will do Trump the same favor. And Trump will likely run up enormous deficits. Don’t forget about the $1 trillion in stimulus spending he has planned. If the Fed doesn’t gobble up the debt used to finance Trump’s spending, it will only work to push up interest rates.

Interest Rates

Manipulating interest rates to near 5,000-year lows is a crucial part of the life-support system. Now the Fed is set to pull the plug and leave Trump holding the bag. In December 2015 the Fed raised interest rates for the first time in almost a decade, from 0% to a mere 0.25%. The Fed kept rates there until last month, when it raised them to 0.50%. It also announced it would accelerate rate hikes throughout 2017—three in total.

There’s a good chance the Fed will announce these rate hikes during the eight Federal Open Market Committee (FOMC) meetings it has scheduled in 2017.

2017 FOMC Meetings
February 1	July 26
March 15	September 20
May 3	November 1
June 14	December 13

I think some of these rate hikes will be much bigger than the 0.25% most expect. They could pull a series of 0.50% rate hikes… or go even bigger. Anything greater than the normal 0.25% tempo would shock the market—and seem designed to hurt Trump.

The establishment will get its revenge on Trump. The Federal Reserve is its weapon of choice.

Trump seems aware of the situation. He recently said, “They’re keeping the rates down so that everything else doesn’t go down.” He’s also said that “We have a very false economy” and the stock market is a “big, fat, ugly bubble.” During the campaign, Trump called Fed Chair Janet Yellen “highly political.” He said the Fed should raise interest rates but won’t because of “political reasons.” (Raising rates before the election would have hurt Hillary Clinton.)

The Media

The mainstream media is another variable to watch. Paul Krugman, a New York Times economist—or, more accurately, witch doctor economist—has come out against Trump’s $1 trillion infrastructure stimulus. It’s bizarre because Krugman, a die-hard Keynesian, had previously never seen a “stimulus” program he didn’t like. Once, he even advocated faking a space-alien invasion to stimulate the economy. It shows that Krugman is not only a fool, but a hypocrite. This is a clue.

I bet the rest of the mainstream financial media—CNBC, Bloomberg, The Economist, etc.—will morph from bullish cheerleaders into pessimistic doom-and-gloomers after Trump takes office. Don’t expect them to find any “green shoots” after the market tanks on Trump’s watch. All this is why what happens after Trump’s inauguration could change everything… in sudden, unexpected ways. This is exactly why Doug Casey and I put together a time-sensitive video explaining how it could all go down.

You absolutely must see this urgent video before Trump’s inauguration in two days. Click here to watch it now.

The article One Big, Fat, Ugly Bubble was originally published at caseyresearch.com.

Playing the Chinese Trump Card

By John Mauldin

“I know the Chinese. I’ve made a lot of money with the Chinese. I understand the Chinese mind.” – Donald Trump, 2011

Back in the olden days (pre-2000 or so), information junkies like me relied on printed newspapers, paper magazines, TV newscasts, and snail mail newsletters. All these channels still exist, but they can’t begin to compete with the constant stream of data rushing into our tablets and smartphones. And on some days the stream rushes faster.

Last week, for instance, it seemed I couldn’t go five minutes without another story on either (a) China or (b) Donald Trump. For a day or so, I really wondered if someone had planted malware in my browser to make me think all other topics were inconsequential. It was all Trump and China, all day and all night. China has pushed the Fed into second place (for a few days at least) – perhaps we should be grateful that at least something has. Of course, there is the little problem that a bear market might be in the offing. Commodity prices seem to be in the toilet. Global currency markets are throwing up. Isn’t the world supposed to be on vacation in August?

Let’s see if we can find a connecting thought or three among all these topics. Plus, I want to show you how the current market meltdown is being brought to you courtesy of your friendly US Federal Reserve Bank. As our starting point, though, let’s cast an eye at The Donald and Chinese currency manipulation.

“Nobody Does Anything”

As we all know by now, on Aug. 11 the People’s Bank of China changed the way it manages the renminbi daily trading band against the US dollar. The result was a two day drop for the RMB and a lot of consternation on trading floors around the world.

Taking questions at an event in Michigan that day, Donald Trump had this to say:

I think you have to do something to rein in China. They devalued their currency today. They’re making it absolutely impossible for the United States to compete, and nobody does anything. China has no respect for President Obama whatsoever, whatsoever.

Well, you have to take strong action. How can we compete? They continuously cut their currency. They devalue their currency. And I have been saying this for years. They have been doing this for years. This isn’t just starting. This was the largest devaluation they have had in two decades. They make it impossible for our businesses, our companies to compete.

                       

They think we’re run by a bunch of idiots. And what’s going on with China is unbelievable, the largest devaluation in two decades. It’s honestly – great question – it’s a disgrace.” Before you dismiss this as nonsense, remember that it comes from a Wharton School graduate.

Still not impressed? You’re right; it is indeed nonsense. Trump and all those who prattle on about Chinese currency manipulation have the economic comprehension of a parakeet. Is Trump really so clueless?

In one sense, it doesn’t matter. Trump isn’t talking to most of us. He draws an audience of frustrated, mostly middle-class Americans who are still hurting from the Great Recession. They want to blame someone. China is an easy target. So are illegal immigrants and Mexico and other faceless culprits. Furthermore, his audience has legitimate concerns. They are fully aware that both political parties ignore them.

A recent Gallup poll shows that 75% of our country believes there is significant corruption in government. They’re tired of it. They want to try something different. It is telling that a recent Michigan poll of Republican party activists found that 55% would go with either untested non politicians or Ted Cruz, who is about as much of an outsider as you can find inside the Washington DC Beltway.

I find almost nothing attractive about Donald Trump, but significant numbers in both parties have clearly demonstrated that they are looking for real change. Shades of Greece and Syriza’s coming to power, or France and the startling surge by Marine Le Pen’s Front National. The US is beginning to experience what our European friends have been living through the past few years.

Back to Trump and currency manipulation. I could do a sentence-by-sentence analysis of his populist harangue on China, but let’s take the really egregious statement: How can we compete? They continuously cut their currency. They devalue their currency. And I have been saying this for years. They have been doing this for years. This isn’t just starting. This was the largest devaluation they have had in two decades. They make it impossible for our businesses, our companies to compete.

No, they haven’t. This whole myth that China has purposely kept their currency undervalued needs to be completely excised from the economic discussion. First off, the two largest currency manipulating central banks currently at work in the world are (in order) the Bank of Japan and the European Central Bank. And two to four years ago the hands down leading manipulator would have been the Federal Reserve of the United States. The leaders/aggressors in the currency wars come and go.

Today, the euro is off over 30% from its highs, as is the Japanese yen. Numerous other currencies are likewise well into double digit slides. China has moved maybe 3 to 4%. Oh, wow.

Secondly, Donald (and to be fair I should address this to Senators Schumer and Graham, et al., too) the Chinese have not been continuously cutting their currency for years. In fact, if they have manipulated their currency, it was first to make it even stronger when the dollar was falling and then to hold those gains in the face of the steadily rising dollar. Meanwhile the rest of the world (Japan, Europe, Great Britain, Brazil, India, among others) was letting their currencies drift down.

The simple fact is that the Chinese currency rose by 20% over the last five years up until a week ago, for reasons we will examine a little later. It is utterly wrong headed to call a 20% rise over almost 10 years “continuous devaluation.” Yes, prior to that time they did allow their currency to devalue rather precipitously, but if you look back and think about it, they were faced with something of a crisis at the time. Most currencies do fall during periods of economic stress.

Don’t get me wrong. The United States and China have a several page list of issues that need to be worked out between them. If you read my recent book on China, you learned about more than a few of those problems. But given that the Federal Reserve has been the most egregious currency manipulator in the world over the last five years, hearing the pot calling the kettle black probably sticks in the craw of most non US citizens. I understand it makes for a great populist harangue. It’s always easiest to blame our problems on someone else. But it doesn’t get us anywhere we want to go.

Back to the main story. Let’s look at this fascinating chart from my friend Chris Whalen over at the Kroll Bond Rating Agency:

Chris writes:

With the end of QE in sight in 2014, the dollar began to climb against most major currencies with the exception of the yuan, which remained effectively pegged against the dollar because of intervention by the PBOC. The yuan has, in fact, appreciated steadily against the dollar since 2006 and continued to move higher within the managed foreign exchange regime maintained by the Chinese government. 

Until last week, the PBOC had been using its foreign exchange reserves to cope with the increased demand for dollars from domestic investors. The decision to end the defense of the currency has economic as well as financial ramifications. For example, investors are starting to wonder just how much foreign currency debt China has accumulated to fund infrastructure investment as well as foreign ventures, and whether this total is reflected in official debt statistics.

Oil and copper are priced in dollars. From the point of view of China, and much of the rest of the world, oil is up several times in the last 15 years, and copper is up 2 to 3 times, even after the recent selloffs. From an inflation-adjusted standpoint, the rest of the world just sees things as getting back to normal. A strong dollar can do that.

Chinese Déjà Vu

Trump’s China complaints are nothing new. I wrote an entire issue on this topic five years ago (and Jonathan Tepper and I dealt with it at length in both Endgame and Code Red.) At that time, economist Paul Krugman and a group of senators led by New York Democrat Chuck Schumer wanted to impose a 25% tariff on Chinese imports. This is from my March 20, 2010, issue: I probably shouldn't take on a Nobel Laureate who got his prize for his work on trade, but this truly scares me. People pay attention to this nonsense, including the five senators, led by Schumer of New York, who want to start the process of targeting China.

First, the Chinese have got to be wondering what they have to do to make these guys happy. In 2005 they were demanding a 30% revaluation of the Chinese yuan. And over the next three years the yuan actually rose by 22% at a gradual and sustained pace. Then the credit crisis hit, and China again pegged their currency [even as the dollar got weaker!]. From their standpoint, what else were they to do? Force their country into a recession to appease our politicians?

They responded by a massive forcing of loans to their businesses and governments and huge infrastructure projects. Kind of like our stimulus, except they got a lot more infrastructure to show for their money. It remains to be seen how wise that policy was, and how large the bad (non performing) loans will be that came from that push – just as there are those (your humble analyst included) who do not think the way we went about the stimulus plan in the US was the wisest allocation of capital.

But the reality is that the Chinese will do what is in their best interest. I wrote in 2005 that the yuan would rise slowly over time. The political posturing of Schumer, et al., was counterproductive then, and it still is now.

My prediction? The Chinese will begin to allow the yuan to rise again sometime this year, just as they did three years ago, because it will be to their advantage. A stronger yuan will act as a buffer to inflation, which they may face due to the massive stimulus they created. They are going to need some help in that area. But it will be 5–7% a year, so as not to create a shock to their export economy. Not 25% at one time. And at some point they will allow the yuan to float against the dollar. They know they will have to in order to get the currency status they want.

Back then, it was Schumer and Krugman who wanted to “rein in” China. Now we have Trump saying more or less the same things. Look at what happened in the intervening five years, in this chart from Krugman’s home-base New York Times.

And sure enough, right on schedule and as I predicted in 2010, the RMB began to slowly rise and rose through early 2014. This was about the same time that “China stopped acting Chinese,” as I wrote earlier this month. At about that time, China Beige Book detected a noticeable shift in Chinese business behavior, when companies stopped using the government’s stimulus to add new capacity.

Our hypothesis, you may recall, is that the Chinese monetary stimulus began going into stocks instead of capital improvement projects. That inflow led to the stock bubble that has popped over the last few weeks. Which resulted in an apparent panic in the halls of Chinese government.

Code Red at the PBOC

Sorting through the approximately 47,000 China reports people sent me in the last 10 days, I see two broad categories of analysis. To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

The article Thoughts from the Frontline: Playing the Chinese Trump Card was originally published at mauldineconomics.com.

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