Problem with high stakes poker

[786Trader]

As the trade war of words and tariffs rumbles on ominously, what was initially a match between President Trump and President Xi has embroiled the worlds markets in a game they did not need or want to play. Flirting with unnecessary turmoil and genuine recession was obviously a possibility when Mr Trump initiated this fight, thinking perhaps no one would dare call his play, but Xi also has an ego and is the head of a totalitarian, nominally communist state of 1.4 billion souls and not subject to the checks and balances of elections every four years. Making him an equally formidable adversary. When Dragons and Tigers fight a draw is the best outcome. 

Personally, I agree that the current trade agreements with China need adjustment. China is now the second largest world economy, no longer an economic novice and needs to accept that it has changed. With that change come responsibility. 

However, in order to facilitate change in the East one needs to understand the mindset. Unfortunately, Trump is subtle as a sledgehammer, somewhat devoid of the notion of tact or what the Asians call Face. Telling people what to do, then threatening them is not model diplomacy, not exactly art of the deal. As a consequence we are where we are, looking at a  potentially turbulent June. Volatility is a traders friend so its going to get mighty friendly, with the only certainty being the price of oil. Which is another story, though esteemed President Trump has had significant input  regards the price of oil too. Stormy weather ahead. Great for traders with Iron constitutions.

The problem with high stakes poker is the stakes can quickly get too high.

 

[786Trader]

@TrendFollower

US debt to China is $1.1 trillion. China hold $2.1 trillion in US govt bonds and treasuries. However, total US debt is aprox $22 trillion= all the assets held by all US pensions and investments. China, newer on the scene to creating debt has been making a fair go at creating debt mountains themselves, currently $34 trillion and counting, so need an ever expanding economy to cover their costs. Ergo China needs an export surplus and higher value exports at that.

For the US and China it is a case of both of them wanting their cake and eating it.

How does the hand get played out? That's the trillion dollar question. Xi has the advantage of time. Trump the advantage of financial clout (he's their biggest customer). However, the poker analogy is not really fair as the results are not binary, more quantum than binary. There are no big winners from an escalation of the current situation and the downsides are far from desirable. If this were to become a matter of attrition, Xi would win as Trump would run out of time and fail to be re-elected on the back of poor economic performance. Though Xi himself would hardly be sitting comfortably on his golden throne in Beijing either for the same reason.

Who will blink first? 

[786Trader]

😁Quite correct a compromise should be the order of the day.  Whether and when are closer to market concerns. President Trump tends to see these sort of negotiations as win/lose,rather than give and take (based on previous evidence and behaviour). My point being he doesn't accommodate compromise gladly and his advisers have an uphill struggle selling him the concept that compromise is a win. He is pragmatic when pushed, though and that could be his saving grace. President Xi is more inscrutable and opaque as is common in the East, though sports a healthy pragmatic streak himself, so face saving compromise may well win out. But not necessarily.

Media circus is also valid, though that is how we receive  most of our information and is filtered accordingly.

"Sudden Death raised a smile.🙂

Have a good weekend.

[phillo]

https://www.youtube.com/watch?v=oeU3wFQvyd8

[786Trader]

@ mindthegap

Did not agree with much of the  linked you tube video. Thought he was full of it to be honest. BS with a sprinkling of useful truth.  He may have been to Asia but completely failed to understand them.

Foxconn make Apple devices in China because there is no way Apple could make them as well, as quick or as cheaply in the US or even Mexico. For example. So either prices go up or Apples margins go right down. Plus everyone is paying more for anything made in china, including simple items like shoes. Not inflationary at all. Ever considered China may do to Apple what Trump has done to Huawei. Trump is a bull in China's shop. And we will all have to pick up the tab.