Bill Bonner – Bill Bonner’s Diary (United States) –
GUALFIN, ARGENTINA – We got up before dawn this morning. We’re taking a cluster of our grapes over to the neighboring ranch, Tacuil.
There, Raul – the winemaker – will tell us if the sugar content is high enough to pick them.
Don Bill and Don Jéjé inspecting sugar levels
An update from Bill: Grape sugar level is ideal. Let the harvest begin!
Poor Raul has even more trouble with his originarios (vaguely indigenous people who are claiming land rights they lost in the 16th century) than we have.
We think we have a plan for winning our war with the originarios. Stay tuned…
Stocks Drop Most in Six Weeks on Trade War Tension
The S&P 500 Index sank 2.5 percent, the biggest one-day drop in six weeks, and the Dow Jones Industrial Average lost more than 700 points. As investors dumped stocks, they rushed to the safety of Treasury bonds, where yields fell back toward 2.8 percent, and the yen, which rallied the most in three weeks.
“Tariffs mean a trade war and the news has the world’s investors running for the exits,” Chris Rupkey, chief financial economist at MUFG Union Bank. “Those are storm clouds out there, that’s what the stock market is saying and that’s why investors are running for the exits.”
Investors, economists, cab drivers, and even members of Congress know that tariffs are bad for business. They raise costs, reduce demand, and stifle investment and innovation.
But they are also a time-tested way of rewarding crony industries.
“What the tax cut giveth, the trade protections taketh away,” sayeth one commentator.
Americans buy goods from China. Now, they will pay more for them, equivalent to a $50 billion tax increase.
But wait. The tax cut was not really a tax cut… it was just a tax time bomb. Government spending went up. Debt went up. When the bomb goes off someone, somewhere, sometime, must pay the cost… somehow.
The $50 billion tariff, on the other hand, is real… and it is now. Tariffs on steel and aluminum are coming online, too, beginning today.
The tariffs target foreign producers. But reports from the heartland tell us that domestic producers are using Trump’s attack on their competitors to raise their own prices. The Wall Street Journal reports:
On Monday, the Metalworking Group of Cincinnati received notice of a 35% increase for American-made cold-rolled carbon steel. Owner Mike Schmitt sent up an SOS on Twitter: “This is a shock. It is unnecessary to be punished by our own government. @realDonaldTrump @senrobportman @RepBradWenstrup. And, yes, this is USA steel not subject to the tariffs.”
Biggest Bubble Ever
Every knows tariffs are bad news. Every knows, too, that budget deficits are asking for trouble.
One Dear Reader gave us his own estimate of how deep in debt the U.S. will be by 2028. Instead of our $40 trillion estimate, he calculates that the total might be closer to $54 trillion:
If you calculate the compound annual interest that would have taken the deficit from $250 billion in 1971 to its current $21 trillion, 47 years later, the calculated rate of compound interest is 9.9%. If you extend that same rate of compounding another 10 years into the future, you get a federal debt of $54 trillion.
Every knows that this is now the second-longest stock market boom in history… and the second-longest economic expansion.
Every also knows that all expansions come to an end and bull markets always turn into bear markets.
What every doesn’t know is when the turnaround will come…or who to point the finger at when it does.
The Fed, with its quantitative tightening program? Or the Blond Bombshell in the White House, with his tariffs and deficits? Or something else entirely beyond our ken?
According to Joe Lavorgna, chief economist for the Americas at investment bank Natixis:
In all, total net worth of $98.75 trillion is now 6.79 times the $14.55 trillion in disposable income for households as of the fourth quarter… That’s up from 6.71 times in the third quarter.
The previous tops came in the first quarter of 2006, with 6.51, and the first quarter of 2000, 6.12. Those two levels cast ominous signals over the U.S. economy.
In other words, this market is the biggest bubble ever. Like a hot air balloon, it floats through the air… right into a thunderstorm.
Every knows that lightning will strike it sooner or later. Every waits to find out when.
TRADE INSIGHT: HOW BAD THIS TRADE WAR COULD GET
By Nick Giambruno, Editor, Crisis Investing
Bill has already shown why a trade war with China won’t Make America Great Again. But some people don’t realize just how bad it could get.
A trade war with China is a topic I’ve been following closely. In late February, I told readers of my investing service, Crisis Investing, that…
Trump’s Commerce Secretary Wilbur Ross recommended imposing big tariffs on imports of steel and aluminum. He said it was an issue of “national security.” Trump will probably oblige.
Only a few days later, news broke that the president would impose tariffs on imported steel and aluminum.
The mainstream press called the tariffs “unexpected.” But they didn’t come out of nowhere.
You see, Trump knows his supporters are passionate about trade and strongly anti-China. It’s a big reason why he won the election… and could be reelected.
But just last month, embarrassment hit…
In February, the Commerce Department announced that the U.S. had realized its largest ever trade deficit with China during Trump’s first year in office. (He’d repeatedly promised to shrink the deficit.)
Have a look at today’s chart…
Trump sees the trade deficit as an economic scorecard between the U.S. and China. Now, with a record high deficit, he has a convenient excuse to escalate a trade war.
It may already be happening.
On top of the steel and aluminum tariffs, President Trump announced another round of tariffs on everything from consumer electronics to shoes made in China; punishment for China’s abuse of American companies’ intellectual property.
China won’t take this lying down. The country’s foreign minister has stated that China would have a “justified and necessary response” to a trade war with the U.S.
The Chinese have effective ways to retaliate.
It’s already been reported that China could soon impose its own tariffs on U.S. agricultural exports including soybeans and live hogs.
This tit for tat between the two countries is the textbook definition of a trade war. And it could get worse…
China could dump U.S. Treasuries (China is the largest holder of American debt). That could cause severe damage to America’s debt market. It could possibly even stoke concerns over how the U.S. would finance its deficits.
China could limit other imports from the U.S. and reduce exports, like iPhones, to the U.S.
The Chinese could also harass U.S. companies operating in the country.
All the while, American consumers and businesses would be forced to pay more for everyday goods.
And then there’s the stock market…
If there’s one thing Wall Street hates, it’s a trade war.
After President Trump announced his new round of tariffs yesterday, the Dow dropped more than 700 points. It closed 2.9% lower.
What do you think will happen to U.S. stocks if these trade spats escalate into full-blown economic warfare?
As Chinese commerce minister Zhong Shan said earlier this month, “There are no winners in a trade war. It will only bring disaster to China and the United States and the world.”
– Nick Giambruno
P.S. I believe there is one more “nuclear option” that China could use in a trade war with the U.S. It could bring the American military to a virtual standstill. However, it could also send one tiny company soaring in value. I recently released an urgent briefing to give you all the details. Read it here.