a confrontation between two weak leaders

Xi Jinping, the president of the Peoples Republic of China and successor of Deng Xiaoping, reversed many of the latter’s reforms, which had moved China away from central planning toward Western capitalism. Unsurprisingly, to everyone except maybe Xi, this has reinforced the central role of the Communist Party, but has precipitated a property/banking disaster.

Donald Trump ran on a platform of restoring economic growth, skipping over the details that this would be built on a foundation of: tax reductions for the ultra-wealthy; tariff walls to discourage imports; arrest/deportation of immigrants; and reduction of social programs like Medicaid. Instead of growth, we’ve had a collapse in the dollar, a slowdown approaching recession and higher prices for lots of things.

My initial thought was that an incipient trade war was a plus for Xi, because Trump would end up being an external threat to China that would unite the country behind its current leader. That may still be true. But Trump may also have worked out that the recession his trade wars would engender has the potential to result in his Republican congressional enablers being tossed out of office and his being impeached and removed. This would presumably revive the lawsuits halted by his election, and result in his wearing a striped jumpsuit before long. If so, the weaker party is certainly Trump.

To my mind, this is the implicit message in today’s stock trading–which seems to be assuming that tariff rhetoric will tone down rather than expand in verbal volume.

I’m in the school of don’t count your money when you’re sitting at the table. Nevertheless, a couple of words on the Trump era so far. My strategy has been, and continues to be, to look for growth in Hong Kong-traded China-based companies and to try to find US stocks that have earnings growth potential, a value tilt, and earnings gains not based on overall domestic GDP growth. Yes, barring a complete change of policy from Trump, I’m expecting GDP to be at least mildly in the minus column. So far that focus has worked surprisingly well, although I’m about 75bp behind the S&P 500 as of 3pm today.