Friday Market Follies – China Trade Deal or BUST!!!

That's all out the window now…

Donald Trump will save us.

That's what we're hoping as the market optimistically heads into this weekend's G20 Meeting, expecting some sort of Major breakthrough as Trump and Xi sit down for dinner on Friday.  In fact, the first image out of Buenos Aires is that ofTrump, Trudeau and Nieto signing the USMCA(ie. NAFTA)after 18 months of negotiations in which our Negotiator-in-Chief got NOTHING better – to the point where Congress may not even ratify the thing as there are so many angy constituents.  

Keep in mind that we already had NAFTA – all Trump did was change the name and claim he invented it (after saying how horrible it was for years) and even THAT took 18 months.  We do not have a current trade deal with China and the chance of going from something to nothing over this weekend is about the same as the chance of Trump letting Xi pick the menu for Saturday's dinner.  

It's not actually clear that Mexico will ratify the deal either as this is effectively Nieto's last act as President of Mexico as he turns over the office to Nationalist successor Andres Obrador on Saturday and you might think "Oh good, another Nationalist, he and Trump should get along great" but that's not how Nationalism works.  We used to have lots of Nationalists and they all said "XXX First!" and they all ended up going to war and killing each other, which led us to an elightened age when GLOBALISTS took control and cut down on conflicts by Opponents—including generic drugmakers, insurers and the influential AARP advocacy group for older Americans—say the deal would make it harder to ease those rules in the U.S. and restrict competition regionally. The Association for Affordable Medicines coalition wrote to U.S. Trade Representative Robert Lighthizer this month, saying the trade pact, as written, “will exacerbate the problem of high prescription drug prices in the United States.”  Just another case of Trump saying how he will fix something but then actually making it much, much worse.  that nations had to compromise to achieve lasting peace.  That's all out the window now…

One of the key "accomplishments" of the USMCA is already a disaster that threatens to skyrocket health care costs as it protects drug makers from generic competition for 10 years (up from 5 in Mexico and 8 in Canada) which means companies can charge outrageous prices for medicine for much longer periods of time.

Opponents—including generic drugmakers, insurers and the influential AARP advocacy group for older Americans—say the deal would make it harder to ease those rules in the U.S. and restrict competition regionally. The Association for Affordable Medicines coalition wrote to U.S. Trade Representative Robert Lighthizer this month, saying the trade pact, as written, “will exacerbate the problem of high prescription drug prices in the United States.”  Just another case of Trump saying how he will fix something but then actually making it much, much worse.  Too bad Florida – you voted for this idiot and now he's stabbing you in your bad backs!  As you can see from the chart, the price of generic drugs has dropped 75% in the past 10 years while the price of prescription drugs had gone up over 200% in the same period – that's a 1,100% difference in price that you are being asked to pay.  Mexico wasn't asking for this, Canada wasn't asking for this – this was Team Trump pushing through what will amount to a massive tax on all Americans in order to keep that Big Pharma money flowing to the GOP.  They sold you out America!  

So that's the guy we HOPE (not a valid investing stragegy) will pull a rabbit out of his ass and make nice with China and hammer out a trade agreement over the weekend.  Good luck with that!  Not only do I debate Trump's negotiating skills (6 business bankruptcies indicate he doesn't always win but he certainly likes to roll the dice) but I debate his motive in talking to China as those Tariffs are now responsible for adding $50Bn a year in revenues (paid for by the American suckers who buy the same overseas goods for higher prices, NOT paid by China at all) and, if Trump expands the Tariffs, the revenues are projected to be $125Bn a year. That $125Bn a year is 10% of Trump's budget deficit so, if he eliminates that and tries to keep his tax cuts, he will go down in history as having the largest budget deficit of any President ever.  It will also give the Democrats even more reson to scale back Trump's tax cuts and the House GOP already didn't have the votes last night to pass the tax bill with very few legislative days remaining until a Democratic House is sworn in in January and last year's tax bill got ZERO Democratic votes (0).

Today is a window-dressing day and there was NO CHANGE AT ALL yesterday to our bounce line chart so we're watching the same levels today but I wouldn't trust anything that happens today so we'll maintain our heavily-hedged stance into the weekend and, in fact, we'll be taking advantage of the bounce to add a little more so we kind of hope we get more of a pop today than what we've had so far.  

Watch the NYSE and Dow very closely at their inflection points – if they can't turn green, there's little hope for the rest!  

Have a great weekend, 

  • Phil
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