Investing in the end of the trade and cold wars
Monday, 14 January 2019
By Bernd Struben
- Cue the moral outrage!
- In the mailbag
- ‘“Astonishing” Lack of Checks and Balances in FBI’s Russia Probe’
‘It’s only the people in Washington, the arm chair generals, that want to keep us at war forever and Americans are tired of it.’
Kentucky Senator Rand Paul
We kick off this week’s Port Phillip Insider with a check on the progress of Donald Trump’s international to-do list.
As the Commander in Chief of the US military, Trump is responsible for ensuring the nation’s security. This enables him to do end-runs around Congress with tactics like declaring a national emergency.
He may yet do this to get his southern border wall funding. But that’s a domestic issue. And our focus is on Trump’s international muscle flexing…and how this could impact global stock markets.
Here’s what I wrote to you last Tuesday:
‘I imagine if we were able to peek through the window of the Oval Office the top three items on Trump’s international to-do list would be these:
- Sign off on great new trade deal with China.
- Get Kim Jong-un moving on denuclearising North Korea. (Nobel Peace Prize, here I come!)
- Forge new treaties with Vladimir Putin. Bring Russia back into the fold.’
While it’s been less than a week, it looks like point one is moving along nicely. That should be good news for the Aussie economy and stock market in general. And it could prove a real boon for stocks closely tied to China’s fortunes.
Like the miners, you might say. And with China’s appetite for Aussie iron ore and coal, you wouldn’t be off base.
But tourism-related stocks are another area to consider for a potential bounce if Trump manages to successfully cross point one off his list.
The trade war is putting a crimp on China’s economic growth. And the pain is already being felt in stocks like Sydney Airport Holdings Pty Ltd [ASX:SYD].
From The Australian Financial Review:
‘Sydney Airport has been a big beneficiary of the Chinese tourism boom, with Chinese travellers – the biggest source of the airport’s overseas visitors – helping numbers of international passengers rise more than three times as fast as domestic passengers.
‘But new research from UBS on Chinese residents’ travel intentions shows Australia is becoming less popular as a tourist destination, potentially crimping Sydney Airport’s growth…
‘UBS attributes Australia’s drop in popularity to the slowdown in the Chinese economy and the US-China trade war, with the Chinese now preferring to holiday closer to home.’
Having started the ‘easy to win’ trade war with China, Trump appears ready to wrap things up. And soon. That will enable him to declare an important political victory back home. And it will help get China aboard to exert the needed pressure on North Korea.
The Chinese are even more eager to relegate the trade dispute to the history books. The last thing Xi Jinping wants is rising unemployment and general disaffection among China’s rapidly urbanising masses.
Which is why, as Bloomberg reports, tackling the trade issues also sits atop the Chinese authorities’ to-do list:
‘China will work to tackle trade friction with the U.S. this year, Commerce Minister Zhong Shan said in an interview with Chinese state media that followed three days of talks between the nations and perked up troubled financial markets.
‘The Ministry of Commerce, which has set trade negotiations as one of its priorities in 2019, will push talks forward and boost cooperation with U.S. states, cities, business communities and non-governmental groups in order to promote a stable bilateral trade relationship…’
I still believe we’ll see a resolution to the trade war early this year that both sides can live with. Very possibly by the end of February. And that could see stocks dependent on Chinese tourism — like Sydney Airport — enjoy a nice bounce.
More, right after a look at the markets…
Over the weekend, the Dow Jones Industrial Average closed down 5.97 points, or 0.02%.
The S&P 500 lost 0.38 points, or 0.01%.
In Europe, the Euro Stoxx 50 index finished down 5.69 points, or 0.18%. Meanwhile, the FTSE 100 dropped 0.36%, and Germany’s DAX closed down 34.13 points, or 0.31%.
In Asian markets, Japan’s Nikkei 225 is closed for the Coming of Age Day holiday. China’s CSI 300 is down 0.77%.
In Australia, the S&P/ASX 200 is down 8.48 points, or 0.15%.
On the commodities markets, West Texas Intermediate crude oil is US$51.59 per barrel. Brent crude is US$60.48 per barrel.
Turning to gold, the yellow metal is trading for US$1,288.13 (AU$1,788.08) per troy ounce. Silver is US$15.61 (AU$21.67) per troy ounce.
One bitcoin is worth US$3,496.70.
That’s a 14.3% fall in the price of bitcoin since I last wrote to you on Thursday.
As Bloomberg reports: ‘It could be make it or break it time for Bitcoin.’ The article continues:
‘A technical measure that analysts who rely on historical price patterns to make their assumptions suggests that Bitcoin is on the brink of a large move. Whether it mirrors the 1,400 percent surge in 2017 that catapulted the cryptocurrency into the mainstream or the subsequent 74 percent decline last year remains in question.’
The technical measure in question is the GTI VERA Bands Indicator.
Reader voice, ‘What the heck is that?’
Your editor, ‘No clue really.’
But apparently the narrowing of the upper and lower bands indicate bitcoin is on the verge of a breakout. You can see that trend in the chart below:
Click to enlarge
Does this represent the kind of buying opportunity we last saw in early 2017? Or is the world’s largest crypto destined for further falls, as the crypto bears predict?
You can stay atop all the latest crypto investing advice — minus the technical jargon — with our in-house experts Sam Volkering and Ryan Dinse right here.
In the world of fiat currencies, the Aussie dollar is worth 72.04 US cents.
Cue the moral outrage!
Returning to Trump’s to-do list, rekindling good relations with China will also give the US a much-needed ally in its efforts to rid North Korea of nuclear weapons. That would be a key step towards officially ending the Korean War with a long overdue peace treaty.
Kim Jong-un, as you likely read, made an unusually public visit to China last week. And he told Xi that he was keen to meet with Trump for a second summit.
According to AP, Kim also said North Korea:
‘[W]ill continue sticking to the stance of denuclearisation and resolving the Korean Peninsula issue through dialogue and consultation, and make efforts for the second summit between (North Korean) and US leaders to achieve results that will be welcomed by the international community.’
That’s a far cry from the threats Kim made to obliterate Washington and target Hawaii with nuclear missiles in late 2017.
If Kim follows through and verifiably rids North Korea of its nuclear weapons capabilities, Trump’s not so secret aspirations for a Nobel Peace Prize may yet come true.
Cue the left-wing’s moral outrage!
Lefty tantrums aside, if Trump can pull off the third point on his to-do list — end the forever-conflict with Russia — he’d certainly be more deserving of the honour than the likes of Myanmar’s Aung San Suu Kyi.
But a peek at the past week’s news shows you just how difficult a road Vladimir Putin and Trump face in their efforts to mend fences.
Now Putin is no saint. And Russia is far from a free democracy.
But don’t you think the world would be better off with the two nuclear superpowers cooperating, rather than at constant loggerheads funding proxy wars?
As Rand Paul pointed out in the opening quote I showed you above, ‘It’s only the people in Washington, the arm chair generals, that want to keep us at war forever…’
And it was Rand Paul, not incidentally, who hand delivered a handwritten letter from Trump to Putin not long after the two leaders met face to face in Helsinki on 16 July.
It’s this type of secret diplomacy that has the Deep State — think entrenched politicians alongside the top players in the military and intelligence industries — truly worried.
From USA Today (citing a report from The Washington Post):
‘After meeting with Putin at the 2017 Group of 20 summit in Hamburg, Germany, Trump took his interpreter’s notes and told him not to discuss the meeting with anyone, including other U.S. officials…
‘No detailed record exists from five of Trump’s interactions with the Russian leader since taking office…
‘Democrats were alarmed by The Washington Post report…
‘In August, [Sen. Jeanne Shaheen, D-N.H.] and Sen. Bob Menendez, D-N.J., sent Secretary of State Mike Pompeo a letter requesting records from that meeting, including the interpreter’s notes. They cited the “extraordinary and, to our knowledge, unprecedented circumstances of President Trump’s two hour, one-on-one meeting with a leader identified as a threat to the United States by President Trump’s own National Security Strategy.”’
House Foreign Affairs Committee Chairman Eliot Engel, a New York Democrat, also sounded his frustration over Trump possibly forming a working relationship with Russia.
Engel was quoted as saying, ‘It’s appalling. It just makes you want to scratch your head.’
Does it really?
Notice how careful these politicians and the mainstream media are to remind us that Russia is our enemy. And that Putin is a threat.
And if the Deep State wasn’t concerned enough about ending what has to be the most lucrative forever conflict in history, Trump’s plan to lift sanctions on some Russian companies has added fuel to their fires.
From The New York Times:
‘Senate Democrats intend to force a vote this coming week on the Trump administration’s move to lift sanctions against companies controlled by an influential Russian oligarch, intensifying a new line of scrutiny of the administration’s handling of Russia policy.’
Clearly Trump is not going to be allowed to make nice with Putin without a fight from powerful vested interests intent on maintaining the status quo. And this is one fight we sincerely he hopes he wins.
If Trump succeeds, and smugly crosses point three from his to-do list, I’d expect to see many Russian stocks head higher.
One way to play that expectation is via the iShares Inc/MSCI Russia ETF [NYSEMKT:ERUS]. The exchange traded fund (ETF) seeks to track the investment results of an index composed of Russian equities.
I first mentioned that you may wish to look into ERUS back on 22 October 2017. It’s down 0.45% since then. Though it’s up 5.7% so far in 2019.
As a reminder I don’t make official recommendations here. This is just an idea you can explore further yourself.
We’ll finish off today with some reader mail…
In the mailbag
Reader Geoff wrote in regarding Trump’s international to-do list:
‘As far as I can see- through all the media hysteria – Trump sees issues as deals to be done in a business sense not issues to be finessed in a political or bureaucratic sense.
‘Example – Syria
‘Trump – A no winner for US – cut losses and move on [does not want another costly Afghanistan fiasco].
‘Politicians – See it as a ‘complex issue with moral overtones’. Express outrage and head for high moral ground – BUT-Best not make any decisions [leave to military/deep state] and kick the can down the road for someone else. Obama was a politician.
‘Media – Corporate want profits from selling ‘news’- bad news, political scandals, conflict etc. sells add space.
‘Journos /Presenters- Want to exert influence and be self important
‘Twitisphere – Value signalling
‘Deep State – Profit, profit, profit and political power so Govt. funds/support continue to flow to make more profit.’
Thanks for writing in Geoff. Syria is a great example. Just look at the hornet’s nest Trump stirred up when he said he’s pulling the US out of Syria.
How dare he!
Finally, here’s the latest on the Russia probe from The Australian Tribune:
‘“Astonishing” Lack of Checks and Balances in FBI’s Russia Probe’
‘US President Donald Trump has, more than once, labelled the FBI’s probe into possible collusion between himself and the Russians as a total “witch hunt”.
‘Now Senator Lindsey Graham, the Republican head of the US Senate judiciary committee, is out to prove the President right.
‘Graham says he plans to ask the FBI about…’
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