American Consumers, Not China, Have Been Eating Trump’s Trade Tariffs All Along

New York Fed and academic researchers found that U.S. consumers and companies have borne the brunt of the president’s trade war.

WASHINGTON — American businesses and consumers, not China, are bearing the financial brunt of President Trump’s trade war, new data shows, undermining the president’s assertion that the United States is “taxing the hell out of China.”

“U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” Mary Amiti, an economist at the Federal Reserve Bank of New York, wrote in a National Bureau of Economic Research working paper. The other authors of the paper were David E. Weinstein of Columbia University and Stephen J. Redding of Princeton.

Examining the fallout of tariffs in data through October, the authors found that Americans had continued paying for the levies — which increased substantially over the course of the year. Their paper, which is an update on previous research, found that “approximately 100 percent” of import taxes fell on American buyers.

The findings are the latest evidence that voters and American businesses are paying the cost of Mr. Trump’s penchant for using tariffs to try to rewrite the terms of trade in favor of the United States.

Manufacturing is slumping, a fact economists attribute at least partly to uncertainty stemming from the trade spats, and business investment has suffered as corporate executives wait to see how — or if — the tensions will end.

The United States and China have reached a trade truce and are expected to sign an initial deal this month, but tariffs on $360 billion worth of Chinese goods will remain in place. The levies, which are as high as 25 percent, have forced some multinational businesses to move their operations out of China, sending operations to countries like Vietnam and Mexico.

Mr. Trump and his supporters say that the United States had no choice but to resort to tough tactics to try to force China to abandon unfair economic behaviors, like infringing on American intellectual property and providing state subsidies to Chinese firms. And Mr. Trump has continued to incorrectly assert that China — not American companies and consumers — is paying the cost of the tariffs.

Tariffs may have worked as a negotiating chip to get China to the table, but recent academic research shows that leverage has come at a steep price for some American businesses and consumers.

The authors of the latest study used customs data to trace the fallout, examining import values before and after the tariffs. The research showed that the tariffs had little impact on China.

“We’re just not seeing foreigners bearing the cost, which to me is very surprising,” Professor Weinstein said in an interview.

They also found a delayed impact from the tariffs, with the decline in some imports roughly doubling on average in the second year of the levies.

That is because “it takes some time for firms to reorganize their supply chains so that they can avoid the tariffs,” the authors write.

Reaction to the tariffs has varied across business sectors, however. In the steel industry, for example, companies that export to the United States have dropped their prices — suggesting that other countries are in fact paying “close to half” of the cost of tariffs, according to the paper.

Because China is only the 10th-largest steel supplier to the United States, though, exporters in the European Union, Japan and South Korea are most likely bearing much of that cost. And as foreign prices drop, domestic steel production has barely budged, which bodes poorly for hiring in the United States steel industry, the authors note.

“The steel industry isn’t getting that much protection, as a result,” Professor Weinstein said.

In previous research, the authors found that by December 2018, import tariffs were costing United States consumers and importing businesses $3.2 billion per month in added taxes and another $1.4 billion per month in efficiency losses. They did not update those numbers in the latest study.

Their analysis joins a growing body of research examining the effects of the escalating tariffs Mr. Trump has imposed since the beginning of 2018.

A study released in late December by two economists at the Fed, Aaron Flaaen and Justin Pierce, found that any positive effects that tariffs offered American companies in terms of protection from Chinese imports were outweighed by their costs. Those costs include the higher prices companies must pay to import components from China, and the retaliatory tariffs China placed on the United States in response, the economists said.

Another study, published in October by researchers at Harvard University, the University of Chicago and the Federal Reserve Bank of Boston, also found that almost all of the cost of the tariffs was being passed on from businesses in China to American importers.

The October study found that the situation was not the same for the tariffs that China has placed on American goods in retaliation. The researchers found that American businesses had less success passing on the costs of those tariffs to Chinese importers, most likely because of the types of goods being sold.

Many of the products that the United States sells to China are undifferentiated commodities, like agricultural goods, but China sends many specialized consumer goods like silk embroidery, laptops and smartphones to the United States. China can easily swap Brazilian soybeans for American ones, but the types of goods that China sends to the United States are harder for American businesses to substitute, the researchers said.

Ms. Amiti’s colleagues at the New York Fed have traced the costs of tariffs in other research. Their study similarly found that import prices on goods coming from China had remained largely unchanged as tariffs rolled out, and argued that already-narrow profit margins — ones that leave no room for cutting — and a dearth of competitors could be among the factors insulating Chinese exporters.

Source: by Jeanna Smialek | The New York Times

And Again: The Fed Monetizes $4.1 Billion In Debt Sold Just Days Earlier

Over the past week, when looking at the details of the Fed’s ongoing QE4, we showed out (here and here) that the New York Fed was now actively purchasing T-Bills that had been issued just days earlier by the US Treasury. As a reminder, the Fed is prohibited from directly purchasing Treasurys at auction, as that is considered “monetization” and directly funding the US deficit, not to mention is tantamount to “Helicopter Money” and is frowned upon by Congress and established economists. However, insert a brief, 3-days interval between issuance and purchase… and suddenly nobody minds. As we summarized:

“for those saying the US may soon unleash helicopter money, and/or MMT, we have some ‘news’: helicopter money is already here, and the Fed is now actively monetizing debt the Treasury sold just days earlier using Dealers as a conduit… a “conduit” which is generously rewarded by the Fed’s market desk with its marked up purchase price. In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name. As shown above, the Fed monetized T-Bills that were issued just three days earlier – and just because it is circumventing the one hurdle that prevents it from directly purchasing securities sold outright by the Treasury, the Fed is providing the Dealers that made this legal debt circle-jerk possible with millions in profits, even as the outcome is identical if merely offset by a few days”

So, predictably, fast forward to today when the Fed conducted its latest T-Bill POMO in which, as has been the case since early October, the NY Fed’s market desk purchased the maximum allowed in Bills, some $7.5 billion, out of $25.3 billion in submissions. What was more notable were the actual CUSIPs that were accepted by the Fed for purchase. And here, once again, we find just one particular issue that stuck out: TY5 (due Dec 31, 2020) which was the most active CUSIP, with $4.136BN purchased by the Fed, and TU3 (due Dec 3, 2020) of which $905MM was accepted.

Why is the highlighted CUSIP notable? Because as we just showed on Friday, the Fed – together with the Primary Dealers – appears to have developed a knack for monetizing, pardon, purchasing in the open market, bonds that were just issued. And sure enough, TY5 was sold just one week ago, on Monday, Dec 30, with the issue settling on Jan 2, just days before today’s POMO, and Dealers taking down $17.8 billion of the total issue…

… and just a few days later turning around and flipping the Bill back to the Fed in exchange for an unknown markup. Incidentally, today the Fed also purchased $615MM of CUSIP UB3 (which we profiled last Friday), which was also sold on Dec 30, and which the Fed purchased $5.245BN of last Friday, bringing the total purchases of this just issued T-Bill to nearly $6 billion in just three business days.

In keeping with this trend, the rest of the Bills most actively purchased by the Fed, i.e., TP4, TN9, TJ8, all represent the most recently auctioned off 52-week bills

… confirming once again that the Fed is now in the business of purchasing any and all Bills that have been sold most recently by the Treasury, which is – for all intents and purposes – debt monetization.

As we have consistently shown over the past week, these are not isolated incidents as a clear pattern has emerged – the Fed is now monetizing debt that was issued just days or weeks earlier, and it was allowed to do this just because the debt was held – however briefly – by Dealers, who are effectively inert entities mandated to bid for debt for which there is no buyside demand, it is not considered direct monetization of Treasurys. Of course, in reality monetization is precisely what it is, although since the definition of the Fed directly funding the US deficit is negated by one small temporal footnote, it’s enough for Powell to swear before Congress that he is not monetizing the debt.

Oh, and incidentally the fact that Dealers immediately flip their purchases back to the Fed is also another reason why NOT QE is precisely QE4, because the whole point of either exercise is not to reduce duration as the Fed claims, but to inject liquidity into the system, and whether the Fed does that by flipping coupons or Bills, the result is one and the same.

Source: ZeroHedge

Happy New Year California Voters: Watch California Socialist Media Discuss Their New Water Usage Laws In Effect – 55 Gallons Per Day or $1,000 Fine…

Yikes.  According to new California laws on water use: you can take a shower or you can do a single load of laundry, but you cannot do both.  55 gal per day limit, or face $1k fine.

California Association Of Realtors, where are you? 

“Tail-End Of A Big Bull Market” – Wine, Diamonds, Classic Cars Are Now Money-Losing Investments For The Ultra-Rich

Luxury assets of the ultra-wealthy, if that were expensive wine, fancy diamonds, and rare antique cars all had a down year as the stock market ramped to new highs, reported The Wall Street Journal.

In the last decade, luxury assets performed exceptionally well as central bankers handed out free money to the elite class to hoard assets of their liking. And naturally, these people, with exceptional taste, bought things that the common man has only seen on television.

Now, these luxury assets are under performing – have been during the past several years – and is a symptom of late-cycle distress.

The froth has gone out of the market. People have realized you can’t just buy stuff and expect the value to go up,” said Andrew Shirley, a partner at Knight Frank and editor of the group’s Wealth Report.

The Journal blames the under performance on the global slowdown and the lack of Asian demand. Chinese buyers account for 33% of global luxury goods sales.

“There is a lot of uncertainty in Chinese markets and the riots in Hong Kong didn’t make it easy for people to come spend money in Hong Kong either,” said Eden Rachminov, chairman of the board at the Fancy Color Research Foundation.

Colored diamonds in 2019 lost about 1% in the first three quarters.

Fine wine was also another losing asset through Nov., lost 3.6%, according to the Liv-ex 1000 index.

And the biggest loser on the year were classic cars, lost 5.6%, according to Historic Automobile Group International’s (HAGI) Top Index.

HAGI founder Dietrich Hatlapa said the classic car market has been cooling following a massive rise in price after the 2008-09 financial crisis. He said classic car prices saw double-digit gains after the recession, rallying 50% Y/Y through 2013. “We are at the tail-end of a big bull market,” Hatlapa warned.

What’s becoming evident is that ‘Not QE’ and other monetary gimmicks deployed by central banks are failing to raise asset prices of some luxury goods in 2019. Perhaps the world is stumbling into a period where tool kits of central banks are becoming less responsive to stimulate asset price inflation, and if that is the case, then everyone will figure out that prices of luxury goods have been hyper inflated over the last decade with nothing but hot air.

Source: ZeroHedge

Trump’s Trade Adviser Peter Navarro Forecasts At Least A 13% Gain For Dow Industrials In 2020

“I’m seeing at least 32,000 on the Dow,” says Navarro

White House National Trade Council Director Peter Navarro sees the Dow a lot higher in 2020

‘I’m looking forward to a great 2020. I mean, forecast-wise, I’m seeing closer to 3% real GDP growth than 2%. I’m seeing at least 32,000 on the Dow.’

Peter Navarro

(by Mark Decambre / MarketWatch) President Donald Trump’s trade adviser Peter Navarro is calling for a roughly 13% gain by the Dow Jones Industrial Average DJIA, +0.27% in 2020, and on Monday described a long-awaited “Phase 1” trade deal as “in the bank.”

Speaking on CNBC on Tuesday, Navarro forecast another period of buoyancy for equity benchmarks and the U.S. economy, with a prediction that diminishing tensions between China and the U.S. over international trade policy will give way to another powerful uptrend for stocks. (Check out a clip of Navarro’s comments below):

Navarro’s comments made on the last trading session of 2019, came before President Donald Trump tweeted that a partial Sino-American trade resolution was set to be signed on Jan. 15. The president also said that he planned to travel to Beijing to start negotiations on the second phase of negotiations thereafter.

Softening tensions over import tariffs between Beijing and Washington have at least partly helped to lift U.S. stocks to their biggest annual gains in years. The Dow looked set to close out a banner year with a two-session skid but has advanced 21.8% this year to trade at around 28,410, picking up more than 5,000 points during the calendar year. Navarro’s forecast, atypical of a government trade negotiator, of a further 13% rise in the Dow to 32,000 in 2020 from currently levels would represent the equivalent of about a 3,600-point gain.

Broadly speaking, stock indexes have enjoyed a bumper year, notably in the past few months of 2019, with reports of an imminent detente on trade.

The S&P 500 SPX, +0.29% has climbed 28.4%, putting it on pace for its biggest gain since 2013 and the Nasdaq Composite Index COMP, +0.30% has gained about 35%, not far from its stellar 1997 return, when it jumped more than 38%.

This year’s gains followed a fall of 4.2% in the S&P 500 index on a total-return basis in 2018, though, so in aggregate there has been just a 12% compounded return over the last 2 years, Datatrek’s Nicholas Colas noted. That is not far off the average 50-year S&P return of 11.1%.

President Trump and his administration have been fixated on the performance of the stock market because they see it as a potential calling card for a second term in the White House after the 2020 elections.

Indeed, this isn’t the first time Navarro has made a forecast about the Dow.

Back in July on CNBC, Navarro said talks between Washington and Beijing were heading in a “very good direction” following a meeting between Trump and Chinese President Xi Jinping at the G-20 summit in Osaka.

At that point, about five months ago, he said that the 30,000 level for the Dow was achievable if Congress approved the U.S.-Mexico-Canada Agreement and the Federal Reserve lowered interest rates.

At its peak this year, the blue-chip index wasn’t that far off 30,000. The intraday peak for the Dow was 28,701, hit on Dec. 27, about 1,300 short of Navarro’s forecast. The Dow began trade in July, when Navarro made his earlier comments, at 26,720 and has climbed more than 6% thus far.

To be sure, investors harbor major concerns heading into next year that markets may not have room for further gains, particularly as investors worry that the China-U.S. trade pact may not yield substantive changes.

Trader’s Choice Gregory Mannarino describes how Navarro’s forecast is based upon far more debt and war in store for Americans …

***

… and boom, right on Cue …

U.S. Sends New Contingent of 4,000 Troops into Iraq on New Years eve…

First, the explanation from former CIA Director, current U.S. Secretary of State, Mike Pompeo:

Welcome to the Flaming 2020’s

Major Banks Admit QE4 (money printing) Has Resumed And That Stocks Are Rising Because Of The Fed’s Soaring Balance Sheet

There was a period of about two months when some of the more confused, Fed sycophantic elements, would parrot everything Powell would say regarding the recently launched $60 billion in monthly purchases of T-Bills, and which according to this rather vocal, if always wrong, sub-segment of financial experts, did not constitute QE. Perhaps one can’t really blame them: after all, unable to think for themselves, they merely repeated what Powell said, namely that 

“growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy. In no sense, is this QE.

As it turned out, it was QE from the perspective of the market, which saw the Fed boosting its balance sheet by $60BN per month, and together with another $20BN or so in TSY and MBS maturity reinvestments, as well as tens of billions in overnight and term repos, and soared roughly around the time the Fed announced “not QE.”

And so, as the Fed’s balance sheet exploded by over $400 billion in under four months, a rate of balance sheet expansion that surpassed QE1, QE2 and Qe3…

… stocks blasted off higher roughly at the same time as the Fed’s QE returned, and are now up every single week since the start of the Fed’s QE4 announcement when the Fed’s balance sheet rose, and are down just one week since then: the week when the Fed’s balance sheet shrank.

The result of this unprecedented correlation between the market’s response to the Fed’s actions – and the Fed’s growing balance sheet – has meant that it gradually became impossible to deny that what the Fed is doing is no longer QE. It started with Bank of America in mid-November (as described in “One Bank Finally Admits The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse), and then after several other banks also joined in, and even Fed fanboy David Zervos admitted on CNBC that the Fed is indeed doing QE, the tipping point finally arrived, and it was no longer blasphemy (or tinfoil hat conspiracy theory) to call out the naked emperor, and overnight none other than Deutsche Bank joined the “truther” chorus, when in a report by the bank’s chief economist Torsten Slok, he writes what we pointed out several weeks back, namely that

“since QE4 started in October, a 1% increase in the Fed balance sheet has been associated with a 1% increase in the S&P500, see chart below.” 

Not that DB has absolutely no qualms about calling what the Fed is doing QE4 for the simple reason that… it is QE4.

The chart in question, which is effectively the same as the one we created above, shows the weekly change in the Fed’s balance sheet and the S&P500 as a scatterplot, and concludes that all it takes to push the S&P higher by 1% is to grow the Fed’s balance sheet by 1%.

And just to underscore this point, the strategist points out that such a finding is “consistent with this new working paper, which finds that QE boosts stock markets even when controlling for improving macro fundamentals.” Which, of course, is hardly rocket science – after all when you inject hundreds of billions into the market in months, and this money can’t enter the economy, it will enter the market. The result: the S&P trading at an all time high in a year in which corporate profits actually decreased and the entire rise in the stock market was due to multiple expansion.

In short: the Kool Aid is flowing, the party is in full force and everyone has to dance, because the Fed will continue to perform QE4 at least until Q2 2020. Which reminds us of what we wrote last week, namely that another big bank, Morgan Stanley, has already seen through the current melt up phase, and predicts the “Melt-Up Lasting Until April, After Which Markets Will “Confront A World With No Fed Support“.”

Source: ZeroHedge

Consumer Confidence Disappoints As Hope Fades

Following the headline decline for Conference Board Consumer Confidence in November, analysts are expecting an exuberant bounce in December as every asset class rose majestically (despite retail sales slowing).

But, despite record high stocks, the headline consumer confidence data disappointed, printing 126.5 (down from the upwardly revised 126.8) and well below the hopeful 128.5 expected.

While the Present Situation picked up modestly, the Future Outlook weakened:

  • Present situation confidence rose to 170.0 vs 166.6 last month
  • Consumer confidence expectations fell to 97.4 vs 100.3 last month

Combining for the 4th monthly headline drop in the last 5…

Source: Bloomberg

Interestingly, this is the 4th straight month of YoY declines in confidence…

Source: Bloomberg

And expectations for stock market gains also faded…

Source: Bloomberg

Isn’t the whole point of The Fed to pump enthusiasm up “by whatever means”?

Source: Bloomberg

It’s not working!

Source: ZeroHedge