Larry Kudlow, former television host and now director of the National Economic Council over in the US, recently appeared in a video on the official White House Twitter account, in which he proudly exclaimed in a prepared statement:
“Wow. Low unemployment, High jobs, high wages, big consumer confidence, major productivity, and… no inflation! It’s totally awesome, we’re killing it on the economy.”
This bizarre prepared statement provoked mixed reactions from market observers. While some were flippant (“Kudlow is back on blow”) others took it as such a blatant act of jawboning that it had to signal a top in the US stockmarket.
However this may look with a few years of hindsight, the phrase “we’re killing it” in relation to the economy took on a rather different meaning a couple of days later. President Donald Trump, a self-declared “Tariff Man”, announced on Twitter that billions more in tariffs are on the way, which could be enforced as soon as Friday.
This may be a Machiavellian attempt by Trump to achieve lower interest rates. Despite Trump’s vocal criticism of the Federal Reserve, urging lower rates, it has yet to yield to his demands. If he can threaten corporate profitability enough using tariffs however, maybe he can get the Fed to pre-emptively lower rates and juice the stockmarket into his election campaign.
I remain very sceptical that there will be any trade deal between China and the US, or if there is, that it will have very little impact in the coming future environment of sustained and increasing geopolitical tension. Anybody that thinks it’s possible to get US/China relations “back to normal”, (ie, the state they were in before 2016) is going to be seriously disappointed in the coming years.
The trade war is just one symptom of the intractable problem of US/China relations; a drawn-out confrontation between a mature power and a rising power that will last years and get much more intense before it’s resolved. Tariffs are just the visible tip of a Cold War iceberg.
How long will it be before a prominent American is arrested in China in retaliation for the arrest of Huawei’s chief financial officer? I reckon we’ll see it well before the end of the year.
But my gloomy outlook is certainly not shared by the market. While the US stockmarket tanked momentarily on the president’s tweets, it has since shrugged off the news.
An ever more globally assertive US is not proving to be negative for holders of US assets – not yet, anyway. But the resulting shake-up of global alliances will have consequences for investors.
A key support for the US’s recent brazen approach to international affairs is its increasing energy independence, thanks to innovations made in shale oil (this is such a critical component to US foreign policy that my colleague James Allen believes the US will soon start subsidising American shale production, but that’s for another day). If this trajectory continues, where does this leave US allies that traditionally supplied the US with oil, like Saudi Arabia?
Mohammed bin Salman giving Vladimir Putin a high-five at the G20 late last year, and the kingdom’s recent purchases of Russian arms and Russian Arctic energy production may hint at a future or Russian/Saudi co-operation that is radically different to the past 45 years. Will Putin become Saudi’s major power patron? It certainly has a ring to it.
I asked you yesterday what you think the future holds for Saudi Arabia, and whether it will remain the oil pump of the world. I’ve received some interesting responses so far that I’ll be sharing in another letter later this week – if you missed yesterday’s letter, or have just had a moment of inspiration on this topic, do chip in: [email protected].
I’ve received some interesting responses so far, with some readers focusing on renewable energy as key to understanding the kingdom’s future – more on that later in the week.
All the best,
Boaz Shoshan
Editor, Capital & Conflict
Category: Market updates