Now what?

Whew! What a shock that was that Trump’s Treasury Dept charged China with manipulating its currency. Something we haven’t seen in at least 30 years and the effects roared through markets quickly.
In the long term does it really matter? I say no. You will have some short term repercussions as both sides work out a way to stabilize an already precarious situation. This morning, China moved to shore up its currency and the World, it seems, breathed a major sigh of relief.
Short-term, Chinas’ moves seem almost desperate. Their economy is feeling the effects of the Trump Tariffs more than the US economy is feeling the effects of Chinese tariffs (as I said previously). Growth in China may slow to a 4.5% rate and that just won’t do for the leadership.
Without digging too deeply into the possible directions this may go you have to know that the World order is being disrupted by the one thing that seems to make things happen, money. China wants ours; we don’t want to give them as much as we used to.

I have always felt that no one wins a trade war but I am willing to admit, this one may come down to the US once again holding the better hand and as long as we play it correctly, we can get most of what we want.

I am not that naïve’ to think that we won’t feel some of that pain. The farmers are definitely feeling the effects of this trade war along with a horrible spring that devasted large swaths of Midwestern farmland. It’s going to be a dicey late summer and fall so hopefully things will recover somewhat and with the aid from the US government these farmers can make it through another year.

Back to China. 25 years ago, trade started flowing out of China and China was dependent on the Global economy growing so they could supply it. If Western Europe or the United States began to slow down, China’s economy would feel the effects first and it would slow down. Maybe the government would sell Yuan and bring their currency down a touch to improve exports, maybe we would notice, maybe we wouldn’t. Now, while still somewhat dependent on exports, China has its own internal economy that feeds on its own. Exports are still a major driver but they also have a five trillion dollar internal economy that does not touch exports or imports and this is where the slowdown may be happening. While their manufacturing sector is trying to figure out how to deal with the reduced trade, they are trying to make up for it domestically and that is a tall order.

They have a huge middle class and this sector is slowing down considerably.

Manipulating the currency to jump start a slowing export sector strikes of desperation and a figurative shot across the bow of the Trump administration.

What the President has proven, like him or not, is that he is no diplomat and he does not act diplomatically. He acts like a businessman and will call someone out for malfeasance. I think it’s not a case of politics, it’s a case of what is right and what is in our country’s best interest.

No, yesterdays turmoil didn’t change my mind about reallocation. I am old school and I have to see trends that want to make me act. I still don’t see that trend positive or negative so here we stay.

50% Stocks
25% Fixed Income
25% Cash