So that’s it then. After all the fuss Trumpie’s stuck another $50bn of extra levies on a load of Chinese imports, let’s face it, it’s pretty small beer…and a lot of it,  let’s be honest, is fairly low value-added stuff like kids’ toys, plastic ducks and wireless routers and the like…

While on the other side of the table, Beijing’s squeezing a few mid-west farmers and going to buy its soya beans from Brazil, not Minnesota-SO WHAT, BIG DEAL, share prices of DEERE etc have hardly moved a jot and the S&P remains up 9% ytd and the Shanghai Composite 18%.  To put this in context the US economy is $19trn and the Chinese economy $12trn. (source: Trading Economics 2017)

So these tariffs are:

  1. a) tiny in the context of relative GDPs
  2. b) largely symbolic gestures from two superpowers vying to appeal to their domestic audiences
  3. c) fairly irrelevant to their economies given that each of their economies are 90% closed (i.e. domestically driven)

And while it’s true that overall global earnings growth has slowed, 2019 estimates of 6% reflect a global economy that, despite all the media noise, is hardly collapsing.

Having said all this, markets have had a strong run since year, and we had become somewhat more cautious on risk assets markets at these high levels…leading us to raise some cash (to 10%) and focusing even more on high yield and shorter-term situations.

But to the heart of the matter with respect to tariffs, IP etc, I was fortunate enough to spend some time with the bosses of LOCKHEED last month and they’re also over here for next month’s annual Paris air show. LOCKHEED is America’s biggest defence equipment manufacturer and alone sells $50bn worth of kit to countries from Germany to Saudi Arabia to South Korea to Japan to Turkey as well as the UK and Italy…

Notice, none to China! While this is itself unsurprising, it does go to show the gulf between the way we see defence in the west and the way they see it in the east and of course while it’s true that China’s catching up fast, it is still miles behind…

Bottom line is China spends even today less than a quarter what the US spends, $150bn (source Chinapower) versus America’s $649bn. (source PGPF) In the end for all China’s increasing power, America has 10 state of the art aircraft carriers while China has two, one it bought from the Russians in 1990 below…

thL3G4NVC1

(source: defencelover.in)

LOCKHEED’s signature combat aircraft the F35 lightning jet can vertically take off and land (VTOL), go at twice the speed of sound and shoot a plane down from 100 miles away.  It’s being sold to all the major players except China and frankly without it, a modern air force is pointless. A conventional war withF 35’s would last about 5 minutes and the enemy would lose, which is maybe why the Chinese are doing a Roger Waters/Pete Gilmour and going to the dark side of the Moon…that album’s from 1973 and the Americans got there four years even before that…

3039377-inline-i-3-the-dark-side-of-the-moon-cover-pf-dark-side-copy

Of course this won’t last long and the new aircraft carrier being built in Dalian will be a modern design and at least compete with the Pentagon’s best…

http://www.globaltimes.cn/content/1149835.shtml

However Trumpie’s pressure is being felt in other ways…  This year alone China will invest $300bn just to keep the economy from falling over.

https://www.bbc.co.uk/news/business-47450223

It will be important for Xi and Beijing to keep growth sustained and the US administration, cheered on by the Democrats, will keep the pressure up in our view…no early respite from tariffs…the issues of IP and market opening up are in any case longer term issues and will not be sorted (or halted) overnight.

So it’s likely that for the first time since the Deng Xiaoping reforms in the 1980’s, China is likely to have its mettle tested by the Americans who will push hard to protect their intellectual property as this cycle extends…

The major issues of food and cybersecurity, the way intellectual property rights are defended and how we develop artificial intelligence as well as how we transport goods and services in the most efficient and effective manner, and build the infrastructure of the future as well as militarily defend ourselves as nations and groups of nations, will all be a key part of this.

Only last week CHINA TELECOM was complaining about being shut out of the large American market as today HUAWEI too has the door closed on them.

It’s basically very simple. If China wants access to the US market they will have to open up to US companies in China, and JP MORGAN’s deal to go to a majority stake in its 49% owned Chinese asset manager China International Fund Management last week is the way this is likely to go

https://www.ft.com/content/ce13973a-7163-11e9-bf5c-6eeb837566c5

The drop in Chinese investment into the US is on the other hand raising interest from China into Europe. Only this week DAIMLER’s Chinese partner BAIC is reportedly buying a 5% take for €3bn…

https://www.reuters.com/article/us-baic-daimler-exclusive/exclusive-chinas-baic-seeks-to-buy-5-percent-daimler-stake-sources-idUSKCN1SH06G?feedType=RSS&feedName=businessNews

Stymied in the States look for many more deals in Europe both including the UK and in the eurozone.

https://valuer.ai/blog/why-is-china-investing-so-much-in-europe/

From the Italian government signing up to the Chinese building and financing the port expansion at Genoa, Britain’s new high-speed rail link HS2, (5 UK transport execs spotted in Beijing recently) the 5G network in Europe and Britain’s new civil nukes are all likely to be built by the Chinese as money is invested here…it is also surely the case that HUAWEI will be challenged by the Scandinavians in the form of NOKIA and ERICSSON being the major beneficiaries…

Meanwhile over on this side of the channel the establishment still doesn’t seem to get it.  On 23 June 2016 nearly 52% of Britons or 17 million people in the biggest single plebiscite in British history voted to leave the European Union.

A total of 408 MP’s represent constituencies at Westminster which voted to leave (out of 650) and on 23 May (i.e next week) the Brexit party presumably will give the UK establishment (yet) another wake-up call and even a majority of the 73 seats up for grabs in the European parliamentary elections (UK is the third largest bloc in Europe) and whose sole mandate is to expedite the UK leaving the place.

https://www.bbc.co.uk/news/uk-politics-38797243

Rightly or wrongly this will be seen as a second referendum and unfortunately for the establishment another defeat looms for them. According to the polls up to 70% of voters will be voting for parties (Brexit party, Conservative party, Labour party and UKIP) which are all formally committed to leaving the EU.

Given the struggle Europe is making of both its economic recovery and the headwinds over key structural reforms and given that 88% of the UK’s economy does not export to Europe this seems hardly to be a huge surprise…

In asset markets overall, we remain fundamentally of the view that markets have moved to higher risk short term following their 2019 rally…we have raised some liquidity, we like utilities and defensive dividend paying blue chips and we like blue chip companies that offer sustainable returns on their public debt or loans

In any period of known history of 300 years+ paying 30 years’ worth of profits for a company and five years’ worth of revenues has led you to lose money or in “bond world” only receiving a 1% rate on bonds is like paying 100x for a stock…

On the various IPO fiascos this last 12 months (ASTON MARTIN, FUNDING CIRCLE, LYFT, and now the big one, UBER) one sensible suggestion surely is to advise investment bankers to think of a number and then halve it.  If all these four had that as a pricing strategy, at least one of them would be in the money (well, just!), the IB’s would have a healthy secondary market and companies like WEWORK could come to the market instead of which the greed has probably cratered the IPO market for the rest of the year and we look forward to the IB’s eating humble pie, which they won’t of course, but still it’s a thought.

And finally, quite interesting below; with all the hullaballoo around currency controls and issues getting RMB out of China these days I couldn’t help but observe the price action of Bitcoin-up from $3500 to $7000, and an interesting blog below on the interest in crypto currencies from Chinese nationals.

Tong

Kayee Tong, Dual US/HK passport, proficient in Chinese.
Answered May 3, 2017
Answered May 3, 2017

The easiest way is OTC trading in Bitcoin using a bank transfer from your Chinese bank account to a trusted intermediary’s bank account in China. Then, you can move Bitcoin across borders electronically. Bitcoin is considered a virtual commodity in Chinese Monetary Policy, so an “export” of commodity shouldn’t be illegal, although don’t take it as legal advice.

However, seeing that you are not in China and you don’t have the right paperwork, the best way is if you know someone who can go to China from the US that can do it for you and knows how to use Bitcoin.

You may incur some fees (0.2–1% +/- Bitcoin price volatility) for a large amount of RMB to USD using Bitcoin as an intermediary, depending on how you do it. I know the people who can do it, but there’s not much incentive unless the amount is 100k+ USD or incurring higher fees for smaller amounts. Seeing that Bitcoin price is rising, the volatility might cancel out the fees for you as of this moment.

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