In Case You Had Any Doubt

The photo is doctored, but it is more honest than any previous Obama photo op.

King Kong versus Godzilla: US and Chinese Central Banks Go to War over Trade

Tariffs are a mistaken policy---unless you find a trading partner who's even dumber than you are and is willing to foot the bill for you. President Trump may have done that. The strengthening dollar suggests a deflationary effect of the tariffs arising from Chinese dollar purchases. The dollar gets stronger, Americans can buy more; the yuan renminbi gets weaker, the Chinese can buy less but sell more. American goods will be harder to sell, but Americans will be richer and have more money to spend. If this pattern continues, some of the effects of Fed monetary policy--reduced interest rates--will be counteracted. The stock market may be in for a roller coaster as Chinese and Fed manipulation--King Kong versus Godzilla--battle it out. Americans may at least temporarily benefit. In the long term, we would have been much better off without the manipulation, without the Fed, and with a market-based system free of central bankers and Wall Street subsidization.

I have temporarily reduced my gold holdings on the chance that dollar strengthening continues and gold continues to fall. A few days ago $1240 was a technical resistance point. Gold is now down to $1217, and it looks like the drop will continue.  I suspect that the collapse in the commodity sector will continue down to the point where the Chinese stop subsidizing the dollar, probably when the dollar rises another five to ten percent. 

WalkAway Feminist Rejects the Democrats

Glenda R. McGee sent me this video of a former left-wing academic who has left the Democratic Party because of the political correctness and anti-Trump movements. She says that her former friends have stopped talking to her simply because she now questions identity politics.

She has noticed that Democrats are not nice, moral people; hence, she has reached a familiar conservative conclusion: If you expand government power, you might find out that you don't like the Democrats who have assumed  that power.

One point I have to add: For an academic, she's not bad looking, and this seems to be a trend. The good-looking people are leaving the Democratic Party, which is increasingly becoming a party of ugly people.

Trade War May Pressure New Bottom in Gold

President Trump's escalating trade war appears to be affecting gold prices, which respond to a stronger dollar.  The tariffs will make Chinese goods more expensive, but the Chinese can make their goods cheaper by making their currency cheaper to offset the effects of the tariffs.  There are many ways the Chinese can do this:  The yuan is pegged to the dollar, so they can lower the peg.  This is easy to do because the Chinese owe at least a trillion dollars in loans to the US, and they hold trillions in dollars and dollar-denominated loans that they’ve made to the US government. If they purchase dollars, the dollar will strengthen, and Chinese goods will become cheaper, offsetting the tariffs.  

In turn, the price of gold is affected by the dollar. A stronger dollar means cheaper gold. That correlation has held this week. 

In light of today’s White House threats of an additional $200 billion in tariffs,  the S&P 500 fell almost one percent and gold fell back to $1244, a fall of about $10.  The yuan renminbi-to-dollar exchange rate has fallen over the past couple of days to $0.1497, the lowest level this year.   

 It will be seen whether gold can hold a technical $1240 inflection point.  If not, there may be a good way down as the Sino-American trade-and-currency war escalates. That might provide a good entry point for gold, perhaps below the $1,000 mark.

Hope is not prediction, though.