Opinion: What is the backdrop of the trade war between China and USA?

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The answer: PETRO YUAN

Contributed by Shan Saeed

Shan

When two elephants fight, they both get maimed and roughed up during the scuffle. In the end, nobody wins in the melee. In the same way, China-US trade war is going to send a negative signal to the global financial markets. So what’s the background to the trade war? Petro Yuan is the major issue, making US policymakers nervous and uncertain.

China has already started making oil payments to Russia and Saudi Arabia in Yuan backed by Gold for the last 15 months. Not a single western media reported on this issue. At IQI global, we were the first one sharing in Nov 2014 in smart investors’ magazine and said: “Petro Yuan was coming in the energy market”.

We are in for the love triangle — Oil, Yuan and Gold.

The US has tried to label China as the currency manipulator but they have failed to prove it. In fact, it’s the South Korean won which meets the criteria of currency manipulator in the article dated March 2, 2017, in Economist magazine. Trump administration is using the same tactics in applying the tariff penalties on China. Tariff, Quotas, duties are like financial protectionism for the country’s industry to cover up for her inefficiencies and deadweight loss.

Trump announced $60bil tariffs on Chinese goods in additions to restrictions on Chinese technology in the US market, China has already responded by placing $3bil worth of tariffs on American imports and if Trump refuses to climb down from his tariff pedestal, Beijing has assured the wider world that this is just the first of many possible retaliatory options. China can withstand the pressure of $60 billion and work her way out of this turmoil strategically. China is ready for the fight but Trump's wrong move can lead US economy to subpar growth. This would get real UGLY... POTUS is heading on a catastrophic path. US economy will suffer more than China.

A) US DOLLAR OUTLOOK FOR 2018—STRUCTURED DEPRECIATION

US dollar will lose 5-8 % of its value in 2018. US dollar is struggling to gain strength against a basket of currencies in the backdrop of

1. Political uncertainty in the White House
2. Trade war with China
3. Advent of Petro Yuan
4. Pandemonium in the equity market
5. Fear of stagflation
6. Weak balance sheet of the US Govt

B) Epitome of US TRADE STRUCTURE.

1. Trade deficit for the last 43 years

2. A trade deficit of $15 trillion since 1975

3. In the month of Feb 2018---$155bil of stock buybacks alone

4. Budget debt of $1.2 trillion

5. A national debt of $22 trillion

6. Equity market will have the mark to market down by 30-40% in the next 12-17 months.

7. Trade deficit of $800 to $900bil in 2018 [ expected]

GOLD MARKET INSIGHT: SMART MONEY IS MOVING INTO TANGIBLE ASSETS.

Real estate, Gold, Silver, Arts, Agriculture, Oil and Gas are getting a lot of attention from the global sophisticated investors who fathom history and economics.

GOLD MARKET INSIGHT: History helps

Year Eco/period Appreciation Price level
             1927-33                  Defla [30%]*    75%  $20 to 35/Oz
 1976-81 Infla [55%]**    300%  $150 to 600/Oz
*Deflation –Declining price levels        **Inflation—Rising price levels.
Sources: Economic period

MARKETS ARE WHISTLING PAST THE GRAVEYARD

Markets are moving like a drunken sailor, getting ready to be slaughtered. Investors are still living in the delusion of grandeur hoping that US economy will make a turnaround. In my opinion, equity and bond markets would take its mark to the market [ at least 30-40% down]. I can foresee PANDEMONIUM in the global financial markets with investors losing $5-10 trillion in the next 12 to 18 months in the equity/ bond markets. Tempestuous times are ahead of us.

 

About the contributors

Shan Saeed is Chief Economist at IQI Global, a leading property and investment company operating and advising clients in Kuala Lumpur, Singapore, Hong Kong, London, Melbourne, Toronto and Dubai.
Linkedin profile: Shan Saeed

 

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