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Saturday, December 07, 2019

Thoughts from Pontevedra, Galicia, Spain: 7.12.19

Spanish life is not always likeable but it is compellingly loveable.   
                  Christopher Howse: A Pilgrim in Spain
Spanish Politics
Spanish Life 
  • Three useful explanatory notes from The Local:-
  1. What and why is the December puente, one of several celebrated by the Spanish during any year.
  2. Odd things Spanish parents do for/with their rug rats.
  3. What is a Roscón de Reyes and when does it appear?
  • And here and here are helpful notes - from a chap called Ian - on the various Spanish pork and beef cuts
  • Talking of pigs . . . It seems we're not the only region in Spain to be facing the challenge of marauding porcos bravos.
  • As I've said 100 times, Spain is a great place to retire to but, as the Dutchman Vincent Werner  controversially alleged - it's not a great place to work in, particularly as a foreigner. The Local - a tad reluctantly - explains why here.
 Galician Life 
  • In yesterday's local paper, this week's (pre-advertised) police campaign in Pontevedra's Zona 10 against vehicle riders exceeding 10kph was pronounced a huge success - as no one was copped. I thought of this outcome when being passed last night in the old quarter by a guy weaving between the many pedestrians at 15-20kph.
  • Earlier in the day, I clocked a police check on the outskirts of Pontevedra as I drove to Santiago. So, were they catching speeders or folk with excess alcohol in their veins after a long/heavy puente night out? Both, of course.
  • Which reminds me . . . Something I've mentioned more than once is the difficulty of staying within the many speed limits on the N550 to and from Santiago. Yesterday, I counted these at 106, in 53km. Or one change every half-kilometre. Or 546 yards.
  • Talking of travelling . . . Hints are already emerging that the AVE high-speed train to Madrid won't, after all in service even by 2021, as only 60% of the track is completed. Possibly 2022, then. Maybe.
Portugal
  • Here's one - comprehensive - answer to the question asked by absolutely everyone who goes to Portugal. BTW . . . Most of the points made apply similarly to Gallego.
USA
  •  Donald Trump is losing his trade war with China, and running out of economic time. . .  The Faustian pact of his own policy malfeasance is closing in. . . The war has been policy fiasco of the first order even on its own crude terms, ignoring the broader collateral to US credibility and prestige.  See the article below.
Spanish
  • Phrase of the day: Puntual. Timely or punctual but also 'one-off'.
Finally . . .
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THE ARTICLE

Donald Trump is losing his trade war with China, and running out of economic time: Ambrose Evans Pritchard, the Daily Telegraph

Donald Trump has got away with his many trade wars over the last 18 months because the US economy has been on steroids, a form of macroeconomic cheating that briefly steals growth from the future but catches up with you.

The rest of the world has been struggling with an auto-led manufacturing slump. This came close to recession conditions earlier this year and touched bottom in August.

The contrast of a seemingly vibrant America and vulnerable competitors went to Mr Trump’s head. He misread the real balance of global economic power. Now the Faustian pact of his own policy malfeasance is closing in too.

Advantage has shifted to others as the cycle rotates. Global green shoots are visible all over the place. China’s Caixin PMI index for manufacturing has rebounded to a three-year high of 51.8. Eurozone M1 money growth accelerated to a blistering 8.4% in November, which may be a false positive but would normally be the harbinger of happier times next year.

Suddenly the US economy is the weak link, uncomfortably close to stall speed and prey to the slightest external shock.  The New York Fed’s instant GDP tracker for the fourth quarter has slipped to 0.77% b(annualised). The Conference Board’s gauge of ‘present expectations’ fell to minus 5.8 last month and is hinting at recession, which is exactly what Societe Generale predicts by the Spring.

The Chinese have Mr Trump over a barrel. The stimulus is fading from his Peronist policies of borrow-and-spend. The Fiscal Impact Measure of the Hutchins Centre shows the tailwind disappearing by early next year and then becoming a headwind.

Last year’s spray of money flattered growth for a few quarters but had a dismal economic return. Unfunded tax cuts pushed the US budget deficit to $1 trillion at a time when the output gap was already closed and the multiplier was therefore inert. It was criminal.

The putative handover to business investment never happened. Companies spent the tax windfall buying back their own stock instead. What is left is a cyclically-adjusted deficit of 6.3% of GDP (IMF data) - four times the UK level - and a debt trajectory heading for 115.8% by 2024.

This year the Fed has kept Mr Trump’s game going with three ‘precautionary’ rate cuts and a $60bn monthly relaunch of ‘not QE’, a strangely discordant action when unemployment is the lowest in half a century.

This monetary bail-out may be enough to power what Bank of America calls the ‘fourth wave’ of the post-Lehman expansion, another mini-cycle of growth before the inevitable denouement. But not if Mr Trump abandons his “Phase One’ trade deal and instead escalates instead with 15% tariffs on another $160bn of goods this month.

The Chinese can withstand another year of stalemate. They have found ways to circumvent tariffs on a grand scale through Vietnam and other conduits.

Capital Economics’ proxy gauge of Chinese GDP shows growth becalmed around 5.4% but  not nearly as bad as in 2015-2016 when capital flight was rampant and the People’s Bank was burning through $100bn of reserves each month. Today the yuan is rock solid.

However, the Chinese know that Mr Trump cannot withstand perpetual trade war because he faces defeat in the elections if Wall Street goes into a tailspin and the US economy buckles in 2020. They are upping the ante and demanding a greater roll-back in tariffs.

They also know that Elizabeth Warren - an ideological protectionist who alarms them even more - has slipped back to 14% in the primary polls and is no longer a hot contender for the Democrat nomination. The incentive to clinch a quick deal is fading. A period of distant hauteur may be better political management for Xi Jinping after the double gauntlet of the Hong Kong and Uygher bills in Congress.

Mr Trump’s London threat this week to walk away from the negotiating table -  “I like the idea of waiting until after the election for the China deal,” to be exact - is an implausible bluff from a gambler losing his wager. The attempt to fortify the demarche with macho side-fights over Brazilian and Argentine steel, or German cars (again), no longer cuts much ice.

An end to the trade truce at this point would be the coup de grace for US corporate capex investment and for the Trump presidency. Companies have been holding back from retrenchment in the belief - or hope - that peak havoc has passed for supply chains and that sanity lies ahead. They would hold back no longer.  “Fear of escalation is destroying business plans. That can turn into a recession very fast,” said Nobel economist Robert Shiller.

Michael Darda from MKM Partners says there are disturbing pockets of stress in US credit markets. Risk spreads on CCC bonds have risen 325 basis points to 11.55% since May, higher than at the onset of the last downturn.

The latest Fed (SLOOS) survey shows a tightening in lending standards across the board and a sharp drop in credit demand. All-economy ‘NIPA’ profits - a better economic indicator than S&P 500 earnings -  contracted at a 0.7% rate last quarter. It needs watching: synchronised belt-tightening by business is the time-honoured cause of recessions.

This is not an economy that can endure much more brinkmanship. Mr Trump has used up all his chips and so far his confrontation with China has achieved absolutely nothing.

From what we know - the draft is secret - his ‘skinny deal’ does not resolve any of the big structural issues. China’s edifice of subsidies is unchanged. There is no reform of its industrial model or the giant state-owned entities, the Communist Party’s machine of patronage and control.

The clamp-down on theft of intellectual property is what the Beijing promised Barack Obama years ago, and what the Chinese need themselves to become a technological superpower.

They have agreed to buy US pork, as well they might:  swine fever has led to the destruction of 100 million pigs and cut the national herd by a third. Some say it is the biggest animal disease outbreak the world has ever known.

So yes, they have agreed to buy more soybeans and farm produce, and less of the same fungible goods from Brazil or elsewhere. That broadly is what Mr Trump calls “the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country”.

The China trade war has been policy fiasco of the first order even on its own crude terms, ignoring the broader collateral to US credibility and prestige. 

Mr Trump now faces a choice: he can double down and lose the White House; or he can capitulate and declare victory. But no country believes his bluffs anymore. 

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