Traders don’t concern themselves with Trump tweets anymore

What the Business Media is Reporting

After the November 2016 presidential election, the new rallying cry was the “Trump Effect” as supporters of the newly minted president sold the narrative that Mr. Trump’s administration would be good for the financial markets and the economy as a whole.  Mr. Trump’s Twitter pronouncements on NAFTA, manufacturing, and trade with China seemed to embolden markets, but as noted in this article in The Financial Times, Mr. Trump’s tweets no longer get the attention of traders.

What is getting the attention of traders?  According to Bloomberg.com, among trader concerns are the dovish comments of central banks.  The Federal Reserve has been signaling that it may take a break from rate hikes.  Low yielding debt, according to Bloomberg analysis, has been scaring investors, however, increases in yields scare asset managers given the threat to values that result from the inverse relationship between yields and asset prices.

Bloomberg estimates that, under the rule of duration,  a full percentage point increase in yields could result in a seven percent erosion in market value.  The bond markets may be looking at a $2 trillion loss.

Government Moves Traders Should be Concerned About

This is budget season as committees in Congress review agency requests.  According to the Congressional Budget Office, the U.S. government is facing a Fiscal Year 2019 budget deficit of $897 billion.  Unless the government can close this gap with increased revenues or less spending, it will go into the debt markets, issuing bonds to help close the gap.

As the deficit widens, there will be an increase in supply of government bonds, a fall in bond prices, and an increase in interest rates.  Funds will be taken out of the private sector portion of the economy and move into government coffers.  In other words there will be less money available to invest in factories, plant, and other infrastructure necessary for economic growth.

While the Federal Reserve gets a lot of play in the media, traders should not allow the glitz that the media paints on the central bank to distract them from the budget activities of Congress.  Congress, as keeper of the purse strings, has a key role in managing the economy.  Its processes, while a lot more mundane than a presidential tweet, are important to monitor.

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A Partisan Rift in the US on Trade Issues is needed to keep the US out of a Military Conflict with China

Listening to Robert Lighthizer testify before the US House Ways and Means Committee, it dawns on me that the United States is not interested in “fair trade” with China. The US is interested in China and other large but emerging nations behaving like colonies.

Trade, as I have shared before, is nothing but a developed country’s claim on a less developed country’s resources. China is a “bad guy” because it has the audacity to not just provide cheap labor for American manufacturing, but is willing to leverage the knowledge it gained producing cheap goods for American companies for export back to the US. China is only good to the US if China is willing to pattern its relationship off of the relationship between the original thirteen colonies and England.

This American view is bipartisan as it is held by such progressives as John Lewis, Democrat of Georgia, and conservatives like Kevin Brady, Republican of Texas. The vocal issue expressed by these men is that China’s state-run version of capitalism undercuts American jobs and creates a hostile price environment for American businesses competing with Chinese imports. I believe the real issue for American politicians is how to get China to restructure its political economy so that China looks more like an American political economy.

So how does America wish to go about “aiding” China’s transition to a consumer-driven political economy? By war. The average American MBA, cab driver, pole dancer, lawyer, etc., believes that China is “dangerous” because they are communist thus a threat to American “freedom.”

This one dimensional jingoistic mindset is encouraged by policy makers and bankers to deflect from the real reason for wanting to duke it out with the Asian Tiger: to change the rules of trade such that China becomes another market for capital, foreign exchange, and bond markets. If “bankers” could generate their coin without introducing corporate capitalism and democracy to China, they would do so.

America, a country whose financial and political markets are fixed on two-year windows, and is fixated with disingenuous diversity, does not have the capacity to change the mindset of a nation steeped in centuries of tradition, a clearer lineage, and 50-year economic plans. America can only hope for military conflict, something the “Deplorables” and other feeble-minded ninety-nine percenters and feeble intellects can grasp.

Again, this new twist on American mercantilism has bi-partisan support which is unfortunate because a rift between the left and the right on foreign and trade policy may be what America needs in order to come up with innovative trade policy while keeping young Americans from dying in a trumped up war.

Verizon moves ahead with 5G

Verizon yesterday announced the rollout of Verizon 5G Home internet service. Verizon claims in its press release that it is the first company to introduce 5G commercially in the United States with service to be provided in parts of Houston, Indianapolis, Los Angeles, and Sacramento.

Given the lack of uniform industry standards, being first to provide 5G service means moving ahead with the service based on its own proprietary 5G standards.  According to Hans Vestberg, Verizon’s chief executive officer,  “To be first, we encouraged others in the ecosystem to move more quickly at every step. We appreciate the partnership of network equipment makers, device manufacturers, software developers and chip makers in reaching this critical milestone. The entire wireless industry gets to celebrate.”

Verizon will start taking consumer orders for the service on 13 September 2018 with the service taking effect on 1 October 2018.

SDx Central, a technology content provider and research firm, estimates that the first phase of 5G standards will probably not materialize until late 2018 when industry can base concrete standards on high profile cases. However, Verizon sees no concerns with moving forward with its own proprietary standards.  Rather, it sees itself as a leader on moving the industry further along the journey to rolling out 5G. According to company spokesman John O’Malley:

“The 3GTF standard we developed actually accelerated the adoption of the international standard last December — two years earlier than most people thought it would happen. And now, device, infrastructure and other technology leaders are developing products that will run on that standard. And when those products and technologies are available, we’ll evolve our offerings as well. The entire industry is working together on this.”

Although Verizon did not mention the impact of its 5G rollout on global trade, broadband communications has been described as an important platform for international commerce, particularly for small and medium enterprises.

In 2013, the World Economic Forum determined that 95% of businesses located in countries that are part of the Organisation for Economic Co-operation and Development has an online presence. The internet in general and social media in particular allowed these businesses to market products globally and reach customers outside of their regions.

Joshua Meltzer of the Brookings Institution in a paper addressing the internet as a platform for international trade said the following:

“Significantly, the Internet is creating new opportunities for small and medium-sized enterprises (SMEs) and for businesses in developing countries to engage in international trade and become part of the global economy. By providing opportunities to access business inputs such as cheaper telecommunications, strategic information on overseas markets, legal and consulting services, and cloud computing, SMEs and developing country firms are now more than ever able to become globally competitive. With a website, these firms can now engage internationally, reaching customers and communicating with suppliers all across the world.”

Could we see further integration of the aforementioned cities into global trade as a result of this rollout?