Outlier economic and bespoke investing outlook #24
Many nations like present day China, a previously staunch socialist country tilted to Maoism succumb in modern times to housing and commercial real estate bubbles in matters of economics and governing communities. In the light of a Britain-Germany brexit negotiations stand off after June 2017 what are some new developments?
Since 2013 Deng’s domestic political strategy has been replaced with neo-Maoism and neo-Stalinism with regard to realpolitik. Hard to eradicate, the personality cult of the dominant leader has been revived. At the 19th communist party congress Xi set himself up for open-ended rule with the abolition of presidential term limit. There was no designated successor and selective anti-corruption campaign has shattered the personal security pact among the ruling elites. In China’s one-party state any lethal threat to the CCP upends the delicate balance of power at the apex of the regime. Official ideological orthodox has altered to a personality cult of lackey second echelon leaders blindly carrying out earmarked policies.
Xi’s signature foreign policy initiatives of the $1 trillion Belt and Road Initiative (BRI), strategic partnership with Russia and South China Sea intrusions are viewed as confrontational. The United States agnostic viewpoint now is changed as China become a threat to its global leadership. With a perception that Trump’s resolute trade war is on the cards many of China’s elite turn to Deng’s forty year ago way forward insightful questioning of “Why have America’s friends grown rich but its enemies have grown poor?”
As at mid August 2018, I personally do not perceive it in that light. Those who mind don’t matter. Those who matter don’t mind. How practical it is to be liked by some, not all is Trump’s motivation. The “Trump-Xi friendship” in resolving trade war tit-for-tat measures and threats will be called upon when needed. The prevailing trade war escalation deflects and is working in the U.S. realpolitik lifting of China’s ZTE sanctions – not withstanding whether it was a quid pro quo or anything else.
The greenback was trading near a 13-month high and the U.S. GDP surged at a 4.1 percent annualized rate in the April-June period. The Dow is once again above 25,000 points and gold is $1171.50 per ounce mainly due to the greenback’s strength and prevailing stocks highs. In respect of our previous Outlier economic and bespoke investing outlook posting of 23 July 2018:
Yes local gold price is comparatively lower even with a weakening Ringgit, although still stronger than base 4.496 to the dollar. The EP value (MYR equivalent price per gram) is way below the base and we keep our gold holdings minimum.
Asian stocks recent slide turned northwards on news of a late August US-China trade talks. How practical it is to be liked by some can see China’s Sinopec offering to take up the surge in shale oil production unlike in May when constraints were imminent. In spite of China’s threat of an anti-dumping probe into U.S. sorghum imports the buying for animal feed has not dampened and even corn imports from the U.S. has risen to one of highest levels in the past decade.
Venezuela’s plan to raise crude oil production and Iran turning more to China as the world’s largest importer of crude most certainly will see the Chinese leveraging on its petro-yuan agenda, henceforth sparing all parties the cost of exchanging dollars in the oil trade. The sellers would be able to convert renminbi into gold should they not take up Chinese goods or there be a comparative deterioration in the currency. A reformed world order in global reserve currency could finally take place and freely be convertible to gold.
The increase use of the renminbi in global financial trade would support the yuan vis-a-vis the mighty dollar. Strengthening of the yuan of course will deflect any suspicion of currency manipulation in the matter of ever growing US trade deficit with China.
Malaysia’s Dr Mahathir official visit to China in mid-August is to place his own affinity with China correctly when he clarifies the burden of Chinese-backed projects initiated by the previous government. Chinese loans for the construction of the East Coast Railway Line (ECRL) and the Suria Strategic Energy Resources (SSER) pipeline project are thought to be perverted. Things ought to be sorted out. There is no suspicion that Beijing did not act in good faith. China’s support for Malaysia’s palm oil would help and a bilateral trade payment in ringgit and yuan agreement will upend new Chinese direct investments.
There no longer is a need for a UK’s “special partnership” with the European Union and it’s a positive factor development for a reformed world order. Each nation ought to abide only by its own laws and unique homeland needs. Referencing Bespoke Investing feature #17 Theresa May’s vision for Britain after Brexit now has to be a no-deal Brexit. Germany’s Merkel may try to upset the course by saying that a Brexit deal should be flexible. Where was she when Theresa May made her case on 22.9.17 in Florence? Why bend backwards to comply with Euro zone rulings?
UK jobless rate falls to new 43 year-low. The Euro zone June industry output plunges. Macron’s hollow election victory (France’s loss) now can look forward to French ports being excluded from European Commission plans for a new shipping route linking Ireland with the Continent post Brexit.