If Trump has radicalized Ontario premier Doug Ford (and maybe you have to be Canadian to appreciate what that means) into permanent distrust of US global leadership – imagine how alienated all other US allies are. https://t.co/BMaJ8zaqNX
— David Frum (@davidfrum) April 3, 2020
Investment visionary Kiril Sokoloff, chairman and founder of 13D Global Strategy & Research, draws on his deep knowledge of history and on the interplay between different market forces in order to forecast what’s ahead — and to suggest how savvy investors ought to position themselves today. In this deep-diving conversation with Real Vision co-founder Raoul Pal, Sokoloff helps answer the most pressing questions around markets and the economy. He also provides a read on how other significant minds are making sense of the increasingly powerful forces that are shaking our financial world. Filmed on July 10, 2019 in upstate New York. To learn more about 13D Publications, visit www.13D.com/trial Note: When this interview was filmed, gold was trading at about $1,400 per troy ounce.
There is a trust and debt problem.
welcome back to cheddar business
everyone on Monday saw the Dow suffer
its worst one-day drop since January 3rd
while the SP and the Nasdaq hadn’t seen
a day like it since early December
joining us now is David Stockman he’s
the former director of the Office of
Management and Budget under President
Ronald Reagan he’s also the author of
peak Trump the under a noble swamp and
the fantasy of manga David it’s great to
have you on chatter happy to be here
look a huge sell-off yesterday right
what do you make of the escalation of
the trade war between the US and China
well I think yesterday was a wake-up
call I don’t think this trade war is
going to end anytime soon
you got two fundamentally incompatible
economies you have a policy being driven
by you know a guy who’s you know lost
his lunch I think Trump has no clue what
he’s doing he’s sliding by the seat of
his pants he’s a hopeless protectionist
he doesn’t really know what he wants and
he has no clue how this is going to
unfold so I think we have big trouble
so why do Republicans the party of
Reagan right why do they seem to be
going along with Trump I think they’re
going along with Trump because the GDP
was had a three in it last quarter and
because we’re at the end of a business
cycle where the whole economy looks good
my point in peak Trump is the peak is
behind us the market peaked last
September at 29 41 we’re now triple peak
I don’t think we’re going back the
economy’s in month 118 of the longest
weakest expansion in history we got
headwinds everywhere we got a federal
debt that’s out of control we have a Fed
that waited way too long to tighten and
now doesn’t know what to do
we have Europe which i think is rolling
over into another recession we have what
I call the red ponzi and China’s
struggling with 40 trillion of debt none
of these things suggest there’s smooth
sailing ahead I think they all suggest
that there’s a huge risk that some kind
of Black Swan or orange Swan is the case
maybe is likely to upset the whole apple
cart you have to assume that recessions
haven’t been outlawed
and what’s going to happen when we get a
recession and the markets way up in the
stratosphere and the federal budget is
already running 1.2 trillion of red ink
and then revenue falls and expenditures
soar we’re gonna have the biggest mess
you can ever imagine so given all these
headwinds that you listed out you said
recessions haven’t been outlawed do you
think this is do you think Trump is
aware of these factors do you think he
feels the pressure to get a trade deal
done with China do you think he’s
capable of getting a deal done that will
be beneficial for US markets no I think
he’s delusional he thinks he has far
more power that he’s far more skilled at
the art of the deal in negotiation that
than he really is and so I don’t think
any deal is going to get done at all and
I think he believes the economy is far
stronger than it actually is because
we’ve had some aberration in the numbers
which aren’t sustainable in other words
we’ve had some inventory build-up and
we’ve had all this turmoil and trade
that pulled imports forward if you
strain that out the economy is growing
at less than 2% a year it’s not a boom
if you actually look at Trump’s first 28
report cards on jobs 200 2,000 per month
Obama‘s last 28 report cards before the
220,000 per month there’s been no
acceleration there’s no boom what we
have is an aging business cycle this
company to the end of the road and we’ve
done nothing to get prepared for the
trouble that’s ahead what is the Fed
going to do the interest rate is only
two point four percent and Trump is
complaining its balance sheet is still
almost four trillion what is the fiscal
policy going to do when we’re already
locked in to a borrowing rate at the end
the tippy-top of a business cycle of 1.2
trillion a year we’ve never been in
these circumstances before and so
therefore I think we have to get over
this recency bias which says well last
couple quarters look pretty good so
what’s to worry there’s everything to
worry because the last 30 years have
been taking us to a point of
much speculation in so much debt now
remember we had the financial crisis
people don’t even remember that anymore
but we did have it in 208 and they said
it was a wake-up call we got too much
debt we need to deleverage right well
there was 53 trillion of debt on the US
economy then this is mid 208 public
private business households government
today it’s 72 trillion all right we went
from 53 trillion which was too high to
73 trillion we’ve added 20 trillion debt
that did give us the kind of you know
appearance of a recovery in prosperity
but really we only doubled down and now
we’re gonna face the music in a far
weaker position with a madman in the
Oval Office who’s home alone and what I
mean by that is who are his advisers
nowadays okay I mean Steve minuchin is
an 80-pound political weakling who gives
yes-men a bad name okay Larry Kudlow has
been snorting bullish ethers down on
Wall Street for so long that he’s not
even in the economist Peter Navarro
would rather have a real war with China
rather than a trade war and you know
Wilbur Ross may have a heartbeat or not
I don’t know but he’s he’s as bad in
terms of trade policy as Trump so it’s
all being run by Bob light Howser who I
know from way back when I was on Capitol
Hill and in the Reagan White House in
the early 80s he’s a lifelong swamp
creature who wants to make government
bigger and better and more intrusive and
that’s the kind of trade deal he wants
it’s really for a big business it’s not
for jobs in the economy what do you
think Reagan would think of President
Trump he would be horrified he would be
horrified because Ronald Reagan was a
small government guy he was a free trade
guy he was a free-market guy he believed
you know rectitude and he was not for
hectoring the Fed for easy money when
Volker put on the brakes and interest
rates went into you know double digits
Ronald Reagan said we have to do it we
got to bite the bullet we got to get rid
of this inflation and let the Fed
restore sound money
so everything that Reagan stood for
Trump is really against okay
he is a hopeless mercantilist
protectionist he is the worst big
spender we’ve ever had in the Oval
Office on the Republican side and you
know he’s he’s a bombastic yes I guess I
go back to my earlier question I just
have a trouble understanding why
Republicans are buying into this and why
Republicans Senators and Representatives
don’t stand up for the party and stand
up for the legacy of the Republican
Party against Trump I could give you an
anecdote from my own history in January
1973 I was a young guy on Capitol Hill
Nixon was riding high he had won the
election 44 million – twenty-eight
million wasn’t a squeaker squeaker like
Trump but swept the whole electoral
college he told his whole cabinet you
got to resign I’m so strong I don’t need
you and within 18 months they had him on
the helicopter and sending him out of
town because the economy went down in
the interim in other words as long as
the economy was showing decent numbers
the Republicans kept quiet and when the
economy and the stock market went down
38 percent they were gone we only have
10 seconds for this answer but is there
a challenger to trump you’re behind
right now probably not okay well come
back when there is okay a former
director of the Office of Management and
Budget under President Ronald Reagan
he’s also the author of peak Trump he
under a noble swamp and the fantasy of
Nagas thank you so much for joining us
Protectionism is worse when it’s erratic and unpredictable.
The “very stable genius” in the Oval Office is, in fact, extremely unstable, in word and deed. That’s not a psychological diagnosis, although you can make that case too. It’s just a straightforward description of his behavior. And his instability is starting to have serious economic consequences.
To see what I mean about Trump’s behavior, just consider his moves on China trade over the past month, which have been so erratic that even those of us who follow this stuff professionally have been having a hard time keeping track.
First, Trump unexpectedly announced plans to greatly expand the range of Chinese goods subject to tariffs. Then he had his officials declare China a currency manipulator — which happens to be one of the few economic sins of which the Chinese are innocent. Then, perhaps fearing the political fallout from the higher prices of many consumer goods from China during the holiday season, which would result from the tariff hikes, he postponed — but didn’t cancel — them.
Wait, there’s more. China, predictably, responded to the new United States tariffs with new tariffs on U.S. imports. Trump, apparently enraged, declared that he would raise his tariffs even higher, and declared that he was ordering U.S. companies to wind down their business in China (which is not something he has the legal authority to do). But at the Group of 7 summit in Biarritz he suggested that he was having “second thoughts,” only to have the White House declare that he actually wished he had raised tariffs even more.
And we’re not quite done. On Monday Trump said that the Chinese had called to indicate a desire to resume trade talks. But there was no confirmation from the Chinese, and Trump has been a notably unreliable narrator of what’s going on in international meetings. For example, he made the highly improbable claim that “World Leaders” (his capitalization) were asking him, “Why does the American media hate your Country so much?”
To repeat, all of this has happened just this month. Now imagine yourself as a business leader trying to make decisions amid this Trumpian chaos.
The truth is that protectionism gets something of an excessively bad rap. Tariffs are taxes on consumers, and they tend to make the economy poorer and less efficient. But even high tariffs don’t necessarily hurt employment, as long they’re stable and predictable: the jobs lost in industries that either rely on imported inputs or depend on access to foreign markets can be offset by job gains in industries that compete with imports.
History is, in fact, full of examples of economies that combined high tariffs with more or less full employment: America in the 1920s, Britain in the 1950s and more.
But unstable, unpredictable trade policy is very different. If your business depends on a smoothly functioning global economy, Trump’s tantrums suggest that you should postpone your investment plans; after all, you may be about to lose access to your export markets, your supply chain or both. It’s also, though, not a good time to invest in import-competing businesses; for all you know, Trump will eventually back down on his threats. So everything gets put on hold — and the economy suffers.
One question you might ask is why Trumpian trade uncertainty is looming so much larger now than it did during the administration’s first two years. Part of the answer, I think, is that until fairly recently most analysts expected the U.S.-China trade conflict to be resolved with minimal disruption. You may recall that after denouncing Nafta as the worst trade deal ever made, Trump essentially surrendered and declared victory, settling for a new deal almost indistinguishable from the old one. Most economic newsletters I get predicted a similar outcome for the U.S. and China.
At the same time, the U.S. economy is slowing as the brief sugar high from the 2017 tax cut wears off. Another leader might engage in some self-reflection. Trump being Trump, he’s blaming others and lashing out. He has declared both Jerome Powell, chairman of the Federal Reserve Board, and Xi Jinping, China’s leader, enemies. As it turns out, however, there’s nothing much he can do to bully the Fed, but the quirks of U.S. trade law do allow him to slap new tariffs on China.
Of course, Trump’s trade belligerence is itself contributing to the economic slowdown. So there’s an obvious possibility for a vicious circle. The economy weakens; a flailing Trump lashes out at China, and possibly others (Europe may be next); this further weakens the economy; and so on.
At that point you might expect an intervention from the grown-ups in the room — but there aren’t any. In any other administration Treasury Secretary Steven Mnuchin, a.k.a. the Lego Batman guy, would be considered a ridiculous figure; these days, however, he’s as close as we get to a voice of economic rationality. But whenever he tries to talk sense, as he apparently did over the issue of Chinese currency manipulation, he gets overruled.
Protectionism is bad; erratic protectionism, imposed by an unstable leader with an insecure ego, is worse. But that’s what we’ll have as long as Trump remains in office.
They took the best growth picture in a decade and put us in danger of recession.
Why are so many key global leaders pursuing so many stupid economic policies?
As recently as January 2018, the International Monetary Fund issued one of its most upbeat economic forecasts in recent years, extolling “broad based” growth, with “notable upside surprises.”
By last month, the fund had sliced its forecast for expansion this year to 3.2 percent — a significant falloff from the 3.9 percent projection reiterated just six months earlier — and had pronounced the economic picture “sluggish.” American investors are more concerned; the bond market is sounding its loudest recessionary alarm since April 2007.
The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.
The trade war initiated by President Trump sits firmly atop the list of bad policies. But Brexit has tipped Britain into economic contraction. With European governments unwilling to pursue structural reforms, the continent is barely growing. President Xi Jinping of China has focused on standing up to Mr. Trump and solidifying his own power. After a promising start reforming the economy, India’s prime minister, Narendra Modi, has turned instead to oppressing his country’s Muslim minority.
None of this was necessary. As the January 2018 I.M.F. report indicated, the world economy was firing on all cylinders — “the broadest synchronized global growth upsurge since 2010” — as jobs were being added and inflation remained subdued.
Yes, Mr. Trump’s trade war and Brexit loomed, but amid hope that the former would prove empty and the latter would be softened.
Not so today.
Often against the recommendations of his more sensible advisers, Mr. Trump has implemented the country’s most protectionist actions since the 1930s. As a result, world trade has begun to fall for the first time in a decade, with noticeable economic impact. Last week, Goldman Sachs cut its already modest projections for fourth-quarter growth to 1.8 percent from 2 percent.
That’s a far cry from the “4, 5, 6” percent that Mr. Trump talked about just before his tax cut passed.Nor has that been Mr. Trump’s only misstep in economic policy. Instead of nurturing growth with important investments like a robust infrastructure program, Mr. Trump deployed his political capital to secure tax cuts that disproportionately favored business and the wealthy.
The “sugar high” they produced quickly wore off. And now, instead of developing better policies, the president has chosen to attack the Federal Reserve, whose independence is cherished by investors, business people and economists.
Boris Johnson, Britain’s new prime minister, abandoned his predecessor’s notion of a “soft Brexit” that would have maintained some ties with the European Union. Instead, he reaffirmed his promise that his country would leave the E.U. on Oct. 31 with or without a deal. The pound quickly fell to its lowest level against the dollar since 1985. (It has since recovered slightly.)
Then there’s China. By virtue of both its remarkably fast industrialization and its protectionist policies, the nation has long been a trade threat. But four years ago, the government issued its “Made in China 2025” economic manifesto, which put in writing China’s plans to attain a leadership position in key new sectors, including robotics, pharmaceuticals and aerospace.
The notion of China using its state power to take on important American and European industries instead of pursuing market reforms set off alarm bells across the political spectrum and provided a concrete underpinning for Mr. Trump’s trade confrontation.
Mr. Xi, rather than acknowledging China’s protectionist practices, has proved unwilling to accept a new trade agreement with effective enforcement provisions. That has raised doubts about whether China is seriously interested in reforming its unfair trade practices — keeping key markets fully or partially closed, using state subsidies to favor its companies, forcing American companies to transfer technology to China and the like.
Of course, at least in the world’s democracies, voters bear substantial responsibility for electing these inadequate leaders. The rise of populism as a reaction to disaffection about economic and social conditions has been well documented as a principal driving force.
Occasionally, good choices have been made, such as the election of President Emmanuel Macron of France. But even that has not led to progress; public support for Mr. Macron turned to opposition when he instituted the much needed policy changes that he promised.
Any chief executive officer who botched his or her job as badly as most of these leaders have would be fired. Let’s hope that voters come to that realization when given the chance.