Category Archives: Economy & Markets

How Donald Trump Is Shaping The Next Global Economic Recession

My Comments: My observations and memories of economic and financial forces over the past five decades has led me to fundamentally distrust the moves made by those who profess to Make America Great Again.

My instincts told me they were pushing us in the opposite direction, ie Make America Irrelevant. It started with us withdrawing officially from any effort to participate in what was the Trans-Pacific Partnership. That told me the Trump Administration was willing to cede global economic supremacy to China.

And so it continues… Forbes Magazine is not known as a liberal rag. All of us need to pay attention.

by Yuwa Hedrick-Wong \ Forbes Magazine \ November 4, 2018

American presidents’ economic policies tend to take time, often a decade or more, to feed into and affect the business cycle. Lyndon Johnson’s decision to debt finance the Vietnam war to avoid unpopular tax increase led to stagflation a decade later. The impact of Ronald Reagan’s supply side revolution was felt most strongly in the investment surge in the late 1990s that ended only with the dot-com bust. Donald Trump’s impact on the economy, however, will prove to be much more immediate. His policies have both raised the risks of a new global recession while seriously weakening the government’s ability to deal with it when it comes.

The current recovery is the longest on record, but also one of the weakest. And as in the nature of the business cycle, the longer its expansion, the closer it is to the next downturn. Over the 2017 to 2018 period, the economy charged ahead on a sugar rush fueled by Trump’s corporate tax cut, a massive stimulus just as the economy was running close to full capacity. Wall Street loved it and stock indexes reached new heights.

In the meantime, the U.S. Federal Reserve started to raise interest rates. In the coming 12 to 18 months, the sugar rush will wear off and attention will gradually shift back to economic fundamentals, which are far less robust than what the frothy equity markets may suggest. The risk of a recession will rise.

The risk may be higher than we think thanks to Trump’s continuous assault on multilateralism and his administration’s erratic policies, which has seriously deepened uncertainty in the global economy. When the herd instinct switches from risk-on to risk-off under conditions of uncertainty, any numbers of confluence of unanticipated events could easily trigger the next recession.

Apart from raising the risk of a recession, Trump has also made it much harder for the American government to deal with it when it happens. Trump’s fiscal spending, especially the tax cut, is on track to raise America’s fiscal deficit from 4.5% of GDP in 2018 to over 6% by 2020, even if no new tax cuts are enacted. This is a shockingly rapid increase and it means the government will have no fiscal power left to jump start the economy when the next recession hits.

Source: https://www.forbes.com/sites/yuwahedrickwong/2018/11/04/how-donald-trump-is-shaping-the-next-global-economic-recession/#14e76b2657e1

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Life is going to turn very nasty if we can’t solve the growth puzzle

My Comments: I’ve written before about income inequality and the effect it will have on society if we do not find a solution.

The ever long crisis in the Middle East arises from vast segments of the population having very little compared to a small ruling class who have a lot. Using religion as a way to remedy their poverty is all they have left in a society where democracy is essentially a sham.

The US built it’s global leadership in the 20th Century on the backs of the middle class who had a realistic expectation of rising up the economic ladder toward prosperity. That is now disappearing. Think college students borrowing money to gain an education and being saddled by crippling debt until they reach middle age.

Prosperity permeated society. The upper class paid taxes to help the lower classes because it gave them more money with which to buy stuff. Our military was second to none across the planet. Today the middle class in the United States is shrinking. The number of working poor is rising. Birth rates are declining. The 1% are favored by our leaders with tax cuts. Add the effects of a con man in the White House and things are going to get nasty.

This is a long article, written for Britain specifically, but for any of you concerned about the world your children and grandchildren will inherit, you need to pay attention and vote accordingly. Assuming there are candidates who also understand this looming problem and are willing to fight to solve it.

by Andrew Rawnsley \ November 25, 2017

One of the earliest examples of the personal computer was the LGP-30. Created in 1956, it had a tiny fraction of the processing power contained in the slim phone that I carry in my pocket. This artefact from the Jurassic era of computing was also excruciatingly expensive. Its retail cost was $47,000. That’s more than $400,000 in today’s money.

This is one way of illustrating why productivity matters so much. It is by improving the efficiency of making things that more people can have better stuff at cheaper prices. Getting more from each hour worked allows wages to rise, lifts living standards and boosts the tax take to finance additional government spending on desirable services. It is this which ultimately underwrites political promises and makes us feel we are getting better off. Absent improvements in productivity, everything else goes to pieces. Including politics. Especially politics.

Which is why it wasn’t any of the big sounding numbers in the budget that counted. The figure that really mattered was a tiny one. That number was 1.2%, which is the revised amount by which the Office for Budget Responsibility thinks productivity will grow per year. From that alarmingly small number, it projects other frighteningly small numbers. The economy will grow by less than 2% in each of the next five years. That means protracted wage stagnation. This forecast, grim as it sounds, is based on one rosy assumption, which is that Brexit has a relatively benign effect on the economy. A bad Brexit would make things considerably worse.
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These small numbers have large consequences. The period since the Great Crash of 2008 is turning into the most stagnant era for living standards since records began. If Britain is now stuck in a low-growth rut, this will be massive. It will fundamentally reshape political argument and very likely blast apart existing parties. It already is. We will be taken in directions that will be highly challenging and to places that could be extremely unpleasant. For all of the life of every adult living in Britain, there have been economic ups and downs and governments have come and gone with the booms and busts. Yet the overall picture has seemed steady. It was the shared assumption of both politicians and voters that the economy would expand at a reasonable clip over time. It was the essential foundation of the expectation that most people would be better off than their parents. The parties argued about how to divide the cake, but they shared a belief that the size of the cake would carry on growing at a respectable rate. That made the dividing business a lot easier. If the cake ceases to grow – or increases at such a glacial pace that it feels like a stop to many folk – that is going to have vast implications.

Let’s start with the least important consequence, which is what this might mean for our current rulers. It has been a rough-and-ready rule that governments improve their chances of re-election if most people feel they are becoming better off. “You’ve never had it so good”, as Harold Macmillan didn’t quite say on his way to an election victory in 1959 as an incumbent presiding over a buoyant economy. Governments struggle to retain support if voters think living standards are stalling or falling.

This rule doesn’t explain everything about election results, but it is a significant component of most. Take our two most recent contests. In 2015, David Cameron was lucky that the timing of the election coincided with a brief period when real disposable incomes were rising. It helped him to justify the pain of austerity on the grounds that a pay-off was beginning to show up in people’s pockets. The Tories improved on their performance of five years earlier and won a narrow majority. Two years on, Theresa May chanced her arm with the electorate when real disposable incomes were once again being squeezed. She tried to change the subject by making the June election about other things, notably Brexit, but that didn’t really work. The stagnation of living standards gave traction to Jeremy Corbyn’s argument that the rules of the economy are rigged in favour of the rich. The Tories lost their narrow majority.

That was not the only difference between those two elections, but it was one of the important ones. If the Tories can stretch this parliament to its full length, they will next face the voters in 2022. You wouldn’t fancy their chances if most people are feeling no better off than they do now and some feel worse off than they were at the time of the Great Crash. Put another way, if Labour were not to win the next election in those circumstances, Labour would only have itself to blame. A low-growth future will be nightmarish for governments of any complexion. It will be much harder to fulfil their promises. Every budget will be difficult. To raise the funds to meet pressure for spending on public services, taxes will have to go up – and it won’t be just “the rich” and companies paying more. Or there will have to be a moderation in expectations of what the state can deliver.

The challenges of a low-growth era will be just as sharp for Labour as for the Tories. It may be more acute for Labour with its historical impulse to promise a New Jerusalem. John McDonnell can use the growth forecasts to attack the current management, but he’d best hope that they are not accurate if he ever ends up in the Treasury with responsibility for trying to find the money to make good on all of Labour’s spending promises. The solution won’t be found on an adviser’s iPad.

In a low-growth future, there might be more of an audience for the view that we over-emphasise economic goods. If there’s not much growth to be had anyway, the Greens and those of a similar inclination could win a wider hearing for the contention that there are more important things in life. My hunch is that it will take a long time to acclimatise most citizens to the idea that growth is no longer a given.

One likely effect on political argument is that it will become more ferociously polarised, an amplification of a trend that is already evident. Desperate times breed more extreme remedies. It is no coincidence, as the old Marxists liked to say, that Brexit, Trump and other populist eruptions have occurred during the long squeeze on living standards that has followed the financial crisis. Brave politicians may try to start an adult conversation with the electorate about the hard choices that follow from low growth. The cowardly, the desperadoes and the unscrupulous will take the national conversation in darker directions. If they can no longer plausibly promise to make people better off, some pursuers of power will seek to create dividing lines around identity and nationality. That ugly trend is already manifest at home and abroad.

A more beneficial use of political energy would be to find out why growth has become so anaemic and do something about it. Politicians have been slow to come to a subject that has been troubling economists for some time. All the advanced economies are struggling with “the productivity puzzle”. The syndrome does seem especially chronic in Britain, but it is not unique to us. This is unfortunate. If other countries had cracked the problem, economists would no longer call it a “puzzle” and we could copy the solutions.

The left contends that low wages, inequality and corporate hoarding are the principal villains. The right prefers to find the fault in regulation and tax. There is merit in various arguments, even if they always seem to suit the pre-existing prejudices of those advancing them. There are some obvious things that government can try to do, such as addressing skills shortages and deficient infrastructure. There are some obvious things that government ought not to do, such as disrupting the relationship with our most important trading partners. But the fact that the “puzzle” is afflicting a wide variety of countries with different political histories suggests that there is not one simple, catch-all cause or solution.

A politically neutral explanation for low productivity growth is that humanity is simply not coming up with enough breakthrough ideas. Ever since the first clever woman lit the first fire, human progress has been powered by discovery, from seasonal crop rotation, to the steam engine, to the computer chip. Ingenious members of our species are still coming up with smart innovations, but it is argued that none of them is significant enough to trigger a new wave of growth.

Are there any sources of optimism? Some. I’ve a hunch that “driverless cars” are not the miracle solution, and my scepticism is reinforced because so many politicians are trying to get into them, but humanity hasn’t lost its talent for invention. Another hope is that economists are wrong, which they often are. One reason they could be wrong about growth prospects is because it has got harder to accurately measure productivity. They may be too pessimistic about it.

If the future is low growth, our politics will change in ways which could be very nasty. Let’s hope that the economists are wrong. Or that someone out there has a very clever idea.

Source: https://www.theguardian.com/commentisfree/2017/nov/26/life-is-going-to-get-very-nasty-if-we-cannot-solve-the-growth-puzzle

Listen to the IMF’s new warning, economist says, and cut your exposure to US stocks

My Comments: The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of “189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

They recognize that market crashes happen from time to time, and that influences the amount of money they have in reserve to deploy around the world.

I see a parallel between their need to preserve their ability to deploy money under their mandate, with your ability to pay your bills in retirement. I encourage you to pay attention and position your money with this in mind.

by Holly Ellyatt @ CNBC

U.S. markets are “going it alone” and investors are underestimating the amount of risk in the economy, the chief investment officer at Danish investment bank Saxo Bank, told CNBC on Wednesday.

“What we’re saying (to investors) at a bare minimum, is do acknowledge the fact that the U.S. is expensive by reducing (exposure to) the U.S.,” Steen Jakobsen told CNBC Europe’s ‘Squawk Box.’

“And if you don’t want to reduce overall equity exposure go to the MSCI World (a global equity index that represents just over 1,600 large and mid-cap companies across 23 developed markets countries) or take a little bit of risk in emerging markets.”

“For now, we’re pretty much saying to customers, be aware that the market is underestimating risk,” he added.

Jakobsen’s comments were made of the same day the International Monetary Fund (IMF) warned that “a further escalation of trade tensions, as well as rising geopolitical risks and policy uncertainty in major economies, could lead to a sudden deterioration in risk sentiment.”

If that happened, the fund said in its latest ‘Global Financial Stability Report,’ it could trigger “a broad-based correction in global capital markets and a sharp tightening of global financial conditions.”

U.S. markets are fretting but concerns are centered on rising U.S. interest rates, particularly this week after a strong set of economic data last week that could prompt the U.S. Federal Reserve to hike rates further and faster.

Volatility is ‘artificially low’

Jakobsen, who’s known for his bearish view on the U.S. economy, said it was “very prudent and right of the IMF to do this warning.” “It’s very rare that I (hold) sway with any policy institute globally but I absolutely think they’re (the IMF) right,” he said.

“We have three drivers of tighter monetary conditions, one being the price of energy, of course with this bi-product of inflation risk, but we also see the price of money…and the quantity of money, globally, is collapsing. So, in other words, the credit keg is lower so it’s absolutely prudent of the IMF to do this.”

Jakobsen believed that U.S. markets were buoyant because of tax changes introduced by President Donald Trump which lowered corporate taxes and incentivized companies to repatriate overseas profits, with a one-time repatriation tax. The changes were also criticized for increasing the U.S. budget deficit, however.

Saxo Bank’s economist said the tax reforms had enabled U.S. companies to initiate share buyback programs, in which a company purchases its own stock from the marketplace, reducing the number of available shares and thus increasing its share price. Goldman Sachs said in August that U.S. companies are expected to buy back $1 trillion worth of shares in 2018.

Jakobsen said this scenario meant the U.S. market was diverging from the rest of the world, “going it alone.”

“I think they’re (the IMF) pointing to, especially in the Stability Report that just came out, the fact that the U.S. market is on its own, and the reasons it’s on its own is because the tax plan in the U.S. has meant a massive amount of repatriation into the U.S. economy,” Jakobsen said.

“The buyback program in the U.S. this year is $1 trillion and that is basically $1 trillion used to reduce the amount of floating stocks in the world. Why is that relevant? Because it makes the volatility artificially low in the U.S. stock market. It’s (the U.S. market) is almost going it alone,” he said, adding;
“So what the IMF is really doing is just pointing out that, if you exclude the U.S., the world is already moving to the brink. Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having this projectory of higher rates,” he said.

He believed the Fed was ignoring the inflows as a result of tax reforms and could be hiking rates too quickly. “For my part, I think the Fed is doing a mistake by ignoring this massive inflow on the back of the tax plan in the U.S. and doing so, they do a policy mistake.”

Source: https://www.cnbc.com/2018/10/10/listen-to-the-imfs-new-warning-economist-says-and-cut-your-exposure-to-us-stocks.html

Trade Wars: Stop Hyperventilating, It’s All About the Dollar

My Comments: Since this article first appeared several months ago, the current administration has doubled down on the idea of import tariffs. For some reason, it thinks that trade wars are what is needed to ‘Make America Great Again’.

A reverse analogy that comes to mind are the gas price conflicts that used to appear in town when some gas station owner decided to lower the price by a few cents, only to have the station across the street do the same thing. Before long, gas was being sold below cost.

As consumers we got to enjoy a price break, but the gas station owners got to lose a lot of money until someone said ‘enough’ and it was over. Tariffs wars between nations simply raises the price on what we buy and we as consumers ultimately lose. At what point do we declare ‘we’ve won’ and life goes back to normal?

By Krishna Memani | March 07, 2018

So, I’ve been reading a lot of articles, such as the one by Noah Smith on Bloomberg titled: “What Trump’s Trade Guru Doesn’t Get About Economics.”

In this article, Smith, a really good blogger who tends to boil things down to simple stuff, goes on to explain to us in detail why trade wars are bad economics.

Of course, I fully agree with him on this. As someone who grew up in the 1970s and 80s—especially in an industrially insular India—I experienced firsthand the bad economic policy of protectionism.
I know, I know. Tariffs won’t meaningfully reduce the trade deficit. For that matter, I also know that, for a country with a low savings rate, eliminating or reducing the trade deficit may not be the best thing for near-term growth. Furthermore, one would have to sleep through an “econ 101” class to not see how tariffs could reduce productivity growth and act as an indirect tax. Also, it is quite obvious that other countries are likely to respond to Trump’s trade provocation, a scenario that of course will cause the steps laid out in this paragraph to happen all over again.

While I don’t know this for sure, I am quite certain that Peter Navarro, the loudest proponent of this protectionist policy, who I believe happens to be an economist by training, gets all of this, too. The point I’m trying to make is that this policy, in my view, has nothing to do with economics. Instead, it’s all about politics, which, as we all ought to know very well, happens to be messy.

Arguing on the economics of this topic as a market participant is a useless exercise because it does not bring us to any conclusion. Trump got elected on a protectionist agenda—and to placate his base he is moving forward on that agenda. And no amount of pleas by the commentariat on the economic principles is likely to help.

So, I have accepted the fact that while it may be bad economic policy, some form of tariffs on some imported goods are likely to be passed. But it’s not the end of the world or a risk to the outlook for the financial markets from my perspective.

To carry forward the political argument a bit, I believe it is also true that if the Trump Administration further intensifies the trade conflict, the real damage to the economy will be quite substantial. The same base that is cheering him on right now may not be so enthusiastic later—and no one understands that more than Trump, in my judgment.

Further, while limited tariff policies make us uncomfortable and create all sorts of bad outcomes and dislocations (remember the “voluntary” auto restraint agreement of 1981 and numerous other such initiatives?), the impact on the longer-term growth potential of the economy would be modest at best. Further, protectionist policies prove themselves over time to be bad and eventually get unwound. I suspect they will be no different this time.

They will certainly create near-term issues with the markets. However, given the momentum in the global economy and the deficit-financed “oomph” to the U.S. economy, my expectation would be that markets will stabilize and move forward after a short hiatus, at worst.

With that being said, the risks to the market cycle and the markets have increased. And that increase has nothing to do with the tariffs themselves. Instead, these increased risks are coming from the almost certain prospect of a weakening dollar. It is this potential weakening of the U.S. currency that has the potential to change things dramatically. If the dollar weakens a lot, thereby indicating that financing flows to the United States are slowing, inflationary pressures will rise and bring the current market cycle closer to an end. I hope somebody emphasizes that consequence to Trump rather than talking to him about the benefits of trade.

So, let us all stop talking about the economic logic of trade because it has no bearing on the debate. Instead, we can focus on the politics and hope that the dollar doesn’t weaken too much while we are waiting for this to pass.

Welcome, Immigrants. The U.S. Really Needs You

My Comments: For the past 18 months, there has been a war on immigration, fostered by Donald Trump and most Republicans. It portends an economic disaster for the US economy.

Yes, open borders will inevitably allow some bad people into the country. But it will also allow some really good people in as well, and we need them if we are going to leave a healthy economy for those that follow in our footsteps.

Keep in mind that virtually every population segment has bad apples. Whether you’re a physician, a CPA or an insurance salesmen, there are always going to be those whose ethical standards are compromised. Some would argue it also happens among politicians.

These words from Scott Minerd explain clearly why we need immigrants. Without them, we can kiss out ass goodby in terms of maintaining a healthy and growing economy going forward.

by Scott Minerd, Global CEO of Guggenheim Partners, July 30, 2018

Recessions usually occur because the economy hits constraints, causing prices to rise and leading the Federal Reserve to raise interest rates. Today the dominant constraint in the U.S. economy is the size of the labor pool. To sustain continued growth, increasing corporate profits, and rising living standards, while maintaining relative price stability, policymakers must approach labor differently. First among the priorities for achieving long-term prosperity is a rational immigration policy.

Labor shortages are already appearing in key parts of the economy, with about half of small businesses reporting few or no qualified applicants for job openings. For the first time since the government began tracking job openings in 2000, available jobs exceed available workers. This isn’t just among highly skilled workers. For instance, homebuilders report a shortage of workers, especially in areas like framing and drywall, which is crimping the supply of new housing and helping to drive up home prices, reducing affordability.

The growth rate of the American labor force is decelerating sharply. U.S. population growth has slowed, reflecting declining fertility rates and reduced net immigration inflows. The population also is aging. In 1960, 38.6 percent of the population was below 20, while 23.3 percent was 50 or older. Today 25.1 percent is under 20, and 35.3 percent is over 50. By 2040, just 23 percent of the population will be younger than 20, and 38.9 percent will be over 50. The domestic labor pool is projected to increase by an anemic 0.5 percent per year over the next 20 years, compared to growth rates of more than 2.5 percent in the 1970s.

How can the U.S. invest in building a strong labor force? Job training and education play an important role in enhancing worker productivity and output, and programs need to be designed to incentivize our aging baby boomers to remain in or return to the workforce. But one of the most important components is immigration.

Immigrants and their children have contributed more than half of the growth of the working-age population over the past two decades. These new arrivals aren’t just an untapped source of labor but add to America’s economic dynamism through high rates of entrepreneurialism and technological innovation. If the United States is to succeed in the 21st century and retain its global hegemony, then rational immigration and deportation policies are critical elements to its success. A dynamic policy that increases the pool of working immigrants could raise annual U.S. growth by one percentage point or more for decades to come.

This isn’t to suggest throwing open the borders. Border security could always be tighter. Instead, the situation requires a pragmatic, economically driven immigration approach that makes it easier for immigrants to come in legally, resolves the status of undocumented workers and Dreamers, and establishes appropriate policies and controls around future immigration.

Immigration policy must recognize that the demand for workers will fluctuate based on economic conditions, so it must be organized to be responsive to the needs of those industries or regions that demonstrate persistent labor shortages. In these instances, there should be employment-driven strategies and sponsorship programs that can match new immigrants with the economic activities and regions that need them.

We need workers across the skills spectrum, but the ability to select from the best and brightest, particularly from those already studying at U.S. universities, could enhance U.S. productivity growth, as well. Foreign students who attend American universities for undergraduate or graduate studies and have employers ready to sponsor them should automatically be granted multi-year employment-based visas after routine background checks. Highly skilled workers already qualify for H-1B visas, but there aren’t enough of them. In April, the demand for these visas was so strong that the Congressionally mandated application cap of 65,000 for the year was reached in just five days. This cap should be either significantly increased or eliminated.

Not only do we need to find ways to attract new immigrants. We must also work to avoid deportation for those undocumented resident immigrants who are law-abiding, contributing members of our economy. Rather than outright deportation, pathways can be established for undocumented workers to earn legal status, which would draw them out of the shadows and make them productive, tax-paying participants in our prosperity.

Let me be clear: Coming into this country illegally is a crime, and conditions for avoiding deportation and earning legal status should include a penalty. For example, workers who come to this country illegally, in exchange for receiving permanent legal status, should have to pay taxes and contribute to Social Security and Medicare, just like working citizens. However, they could be restricted from receiving many social benefits provided to taxpaying U.S. citizens, and shouldn’t be eligible for Social Security and Medicare benefits for a much longer period, perhaps until age 75.

When economically focused, rational immigration policy is combined with productivity gains from recent tax reform, efficiency gains from improved infrastructure, and native population growth, real growth in America could reach a sustained rate of 5 percent or more. This will ensure that the U.S. expansion continues, while averting the needless boom-bust cycles of expansion and recession. With smart and creative ideas to grow the U.S. workforce, the full effects of current economic policies could flourish uninterrupted for generations to come.

Source: https://www.guggenheiminvestments.com/perspectives/global-cio-outlook/us-economy-needs-more-immigrants

Trump’s Looming Bust-up with China is Bad News for 2018

My Comments: Having more money to spend in retirement requires a delicate balance between living cautiously and making sure your funds are growing properly. If you stay alive, the money to pay your bills has to come from somewhere.

All that is to say that global economics is going to play a role in your future financial affairs, whether you understand it, like it, or don’t give a hoot about it. My efforts to help my friends and clients is to try and provide insights to help you get it right and have more money rather than less money.

Trump has already conceded economic hegemony to China on the global stage by refusing to participate in the Trans-Pacific Partnership. That alone is going to limit your financial future over the next several decades. Don’t say I didn’t warn you.

by Edward Luce / January 3, 2018

Flattery gets you everywhere with Donald Trump. But only while it lasts. Like any addiction, it needs regular boosts in higher doses. Amid fierce bidding, China’s Xi Jinping won first prize as 2017’s most effective Trump flatterer. All it took was a lavish banquet in the Great Hall of the People. In return, Mr Trump forgot to raise America’s trade complaints or human rights. Mr Xi easily outflanked the US at the Asian summits following Mr Trump’s China visit. If the key to seducing him is a dish of Kung Pao chicken, what’s not to like?

The problem is that Mr Xi must continually feed Mr Trump. At a certain point, the ratio of Trump flattery to loss of self-respect will be too high. Would another flurry of trademark approvals for Ivanka Trump break China’s bank? Probably not. What about giving the go-ahead for a Trump Tower in Shanghai? Possibly. Another red carpet reception is unlikely to cut it. The law of diminishing returns applies to favors already bestowed. In 2018, it is likely to turn negative. China has always been in Mr Trump’s sights. Massaging his ego buys only brief respite.

The other ego is Mr Xi himself. China has acted with caution for more than a generation. For Washington’s “never Trumpers”, Beijing’s restraint gave it honorary membership of the axis of adults that would curb Mr Trump’s instincts. If Mr Trump was a loose cannon, China could be counted on to behave responsibly. In the opening months of Mr Trump’s presidency, Mr Xi did just that. China, not the US, is now the darling of the Davos economic elites. Mr Xi can lecture on Ricardian trade theory with the best of them.

But China’s age of forbearance is over. In October, Mr Xi opened a bolder chapter in China’s foreign ambitions. Deng Xiaoping, China’s great moderniser, spent his last years with no official role other than chairman of China’s bridge association. Hu Jintao, Mr Xi’s predecessor, was happy with just being president. Mr Xi, by contrast, has grabbed every title going and immortalized his own thought in the party’s constitution. Mr Trump has competition, in other words. For the first time since Mao Zedong, China has a living personality cult. US-China relations are now in the hands of two gargantuan egos.

That is bad news for 2018. Added to this are two bigger clouds. For the first time since the cold war, the US has an explicit competitor. Mr Xi’s China has set itself the target of becoming the world’s top dog within a generation. Unlike the Soviet Union, China can sustain technological rivalry with the US. America’s dominance in the Asia Pacific is no longer a given. Mr Xi’s aim is to achieve military parity. Second, America’s president thinks in hourly increments. China’s leader plans in decades. The battle between these two egos is one-sided. Mr Xi holds a telescope. Mr Trump stares at the mirror.

The scope for misunderstanding is growing. Too much attention has been paid to the spectre of a nuclear conflict between the US and North Korea — too little to the looming fallout in US-China relations. That is in spite of Mr Trump’s latest tweet boasting that he had a bigger nuclear button than Mr Kim.

The US president still believes China can disarm Kim Jong Un on America’s behalf. No one else thinks that is likely. Last week, Mr Trump said his patience with China was running out. Mr Trump’s advisers have so far curbed his protectionist impulses. But Mr Trump is rarely muzzled for long. His one consistent belief is that the US is being ripped off. China, whom he has repeatedly accused of raping America, tops the list. “If they don’t help us with North Korea, then I do what I’ve always said I want to do,” he told The New York Times. We should expect 2018 to produce US trade actions against China and Beijing to fight them at the World Trade Organization. There will also be more nuclear tweets.

But the US-China fog extends far beyond the Korean peninsula. As does the potential theatre of confusion. Last year China opened its first overseas base, in Djibouti. A Chinese aircraft carrier made its first visit to the Mediterranean. Mr Xi also stepped up China’s installations in the South China Sea — a subject on which Mr Trump has yet to comment.

Mr Trump has not uttered the word “Taiwan” since he spoke to its leader after his election. His first tweet of 2018 was to accuse Pakistan of “lies and deceit”. China rushed to Pakistan’s defense. “China and Pakistan are all-weather partners,” said Beijing after praising Islamabad’s “outstanding contribution” to fighting terrorism. Mr Trump was far closer to the truth. But there are few gulfs of perception wider than that.

In a stand off between Mr Trump and Mr Xi, who would blink first? There is no way of knowing. However, China is giving hints of over-confidence. From the Iraq war to Mr Trump’s election, China has been reaping one windfall after another. His disdain for democratically elected leaders plays straight into Beijing’s hands. But its luck cannot last for ever. Mr Xi should remember that Mr Trump launched missile attacks on Syria when the two were having dinner in Mar-a-Lago. Many in China believe Mr Trump is a paper tiger. They may be right. But it would be rash to test that theory.

Forecasting the Next Recession

My Comments: I may have retired from providing investment advice but I’ve not yet left the building. What happens in the world of money still interests me both professionally and personally.

Attached to this post, by way of a link to a 12 page, downloadable report, is a projection from Guggenheim that says we’ll experience a recession roughly 24 months from now.

Whether they are right or wrong, the next one is somewhere on the horizon. Knowing in advance when it might happen will help manage the financial resources you have that pay for your retirement.

Just don’t confuse the timing of a recession with the timing of market corrections of 10% or more. While there is some correlation, it is far from 100%. Also keep in mind the stock markets price things based on what people THINK will happen, not what actually does happen.

Here’s the link to download a copy of the report: Forecasting the Next Recession.