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The US has arrested a former Apple employee who allegedly tried to abscond with sensitive proprietary information from the company’s closely guarded self-driving car project, according to the Financial Times. Xiaolang Zhang, who had recently left his position at Apple under suspicious circumstances, was arrested by FBI agents as he tried to board a plane bound for mainland China.

Zhang joined Apple in December 2015, and was arrested on July 7. US prosecutors allege that he had downloaded sensitive information about the company’s self-driving car research without permission. During his time at the company, Zhang worked “to develop software and hardware for use in autonomous vehicles.”

The charges against Zhang represent the latest in a series of arrests made by federal authorities of Chinese spies carrying out what the US government calls “economic espionage” that date back to 2006.

And with President Trump intensifying efforts to stop China from extracting intellectual property from foreign corporate partners trying to gain a foothold in Chinese markets, it’s hardly surprising that China is stepping up its espionage programs. Zhang initially aroused suspicion when he told Apple that he would be returning to China to take a job with Xiaopeng Motors, a Chinese electric-car startup that also has offices in the Bay Area.

The complaint against Mr Zhang said about 5,000 of Apple’s 135,000 full-time employees have security clearance for Titan, although that figure may include staff across the company working on artificial intelligence technology, as well as hundreds of people working on the car project itself.

Mr Zhang allegedly told Apple on April 30 that he intended to resign after returning from paternity leave. He told his supervisor he was moving back to China to be closer to his mother, who he said was ill. Later in the meeting, he said he intended to work for XMotors, according to the filing on Tuesday.

His comments apparently raised the suspicions of his supervisor. Mr Zhang was asked to turn over his Apple-owned devices and escorted from its campus, his network and building access revoked, the filing said.

Apple began an internal investigation and allegedly found he had downloaded information about its autonomous vehicle project. CCTV footage showed he had also taken a large box from Apple’s self-driving car lab shortly before informing his supervisor about his resignation, the US government claimed.

After his arraignment on Monday, a judge ordered that Zhang be held until his trial, presumably because he presents a serious flight risk (Chinese authorities would

US prosecutors alleged he had downloaded information from a database for Apple’s self-driving car project – including data on power requirements, battery system and drivetrain suspension mounts – shortly before informing Apple in April that he was resigning.

He allegedly told the company he intended to return to China and take a job with Xiaopeng Motors, a Chinese electric car start-up with offices in Guangzhou and Palo Alto, California.

Mr Zhang appeared in court in San Jose, California, on Monday and was remanded in custody, according to a separate filing. He was assigned a public defender, who did not immediately return a call requesting comment.

Xiaopeng Motors, also known as XMotors, did not immediately respond to requests for comment. According to the filing on Tuesday, Mr Zhang claimed to have joined XMotors’ California office after leaving Apple.

Not much is publicly known about Apple’s secretive self-driving car program, codenamed Project Titan. According to the FT, it’s presently focusing on the underlying software for autonomous cars.

Details started to emerge about Apple’s secret project to create an electric vehicle in early 2015, as it poached staff from carmakers including Tesla and Mercedes-Benz. Since then, Apple has rarely discussed its plans but regulatory filings, including its permit to test autonomous vehicles in California last year, have hinted at its strategy.

Codenamed Project Titan, the effort underwent a shift in strategy in mid-2016, after its initial leader Steve Zadesky was replaced by Apple veteran Bob Mansfield.

At the moment, Apple is focusing on developing the underlying systems required for autonomous driving, rather than the vehicle itself. That includes a plan to test a self-driving shuttle to ferry employees around its offices in Silicon Valley.

As the US said in the document unveiling its latest round of proposed tariffs, the Trump administration has been seeking to stymie China’s “Made in China 2025” plan – a government-backed initiative to establish China as a leader in several key industries like artificial intelligence – at every turn. Under Trump, the US has been more aggressive about blocking Chinese companies attempting to acquire US firms in an effort to siphon off their valuable technology. So China has been working on other methods for surreptitiously stealing the technology.

“Apple takes confidentiality and the protection of our intellectual property very seriously,” an Apple spokesperson said. “We’re working with authorities on this matter and will do everything possible to make sure this individual and any other individuals involved are held accountable for their actions.”

XMotors, Zhang’s erstwhile employer, is one of the dozens of startups working on electric and autonomous vehicles in Silicon Valley. Its purported involvement in the espionage case is made even more galling by the fact that its backers include some of the most well-known Chinese firms like Alibaba. This year, the company hired a former senior banker at JPMorgan to be the company’s vice chairman and president. WSJ reported on Wednesday that China is considering other methods of retaliating against President Trump in the battle over trade, including holding up licenses for US firms operating in the Chinese market, to enforcing customs delays while also delaying approval of deals like Qualcomm’s planned takeover of NXP Semiconductors. 

By some estimates, China has 20,000 intelligence operatives embedded in the US ready to commit economic espionage at every conceivable opportunity. China also employs sophisticated hackers like the group that recently infiltrated a military contractor and stole military secrets. And as trade tensions intensify, expect China to press its espionage advantage as President Xi Jinping is determined to make “Made in China 2025” a resounding success.

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Shares of Papa John’s tumbled on Wednesday to $47.80, the lowest price since February 2016, after after outspoken chairman and founder John Schnatter came under fire following a report from Forbes that he used the N-word on a conference call in May designed by marketing agency Laundry Service as a role-playing exercise for Schnatter in an effort to prevent future public-relations snafus” after he waded into the debate over national anthem protests and made several inflammatory comments against the NFL.

On the May call, Schnatter was asked how he would distance himself from racist groups online. He responded by downplaying the significance of his NFL statement. “Colonel Sanders called blacks n—–s,” Schnatter allegedly said, before complaining that Sanders never faced public backlash.

Schnatter also reflected on his early life in Indiana, where, he said, people used to drag African-Americans from trucks until they died. He apparently intended for the remarks to convey his antipathy to racism, but multiple individuals on the call found them to be offensive, the source said. After learning about the incident, Laundry Service owner Casey Wasserman moved to terminate the company’s contract with Papa John’s. –Forbes

Shares in the pizza chain have dropped 25% since news of the remarks was made public. 

Papa John’s did not dispute Forbes‘ report on Wednesday, however they noted that “Papa John’s condemns racism and any insensitive language, no matter the situation or setting. … We take great pride in the diversity of the Papa John’s family, though diversity and inclusion is an area we will continue to strive to do better.”

As Bloomberg adds, the company’s new CEO, Steve Ritchie, who replaced Schnatter in January, sent an internal memo to team members, franchisees and operators on Wednesday addressing the event, though without mentioning Schnatter by name.

“You may have read the media reports today tied to our company culture. We want to make it clear to all of you that racism has no place at Papa John’s,” according to the memo obtained by Bloomberg News.

“The past six months we’ve had to take a hard look in the mirror and acknowledge that we’ve lost a bit of focus on the core values that this brand was built on and that delivered success for so many years,” Ritchie said. “We’ve got to own up and take the hit for our missteps and refocus on the constant pursuit of better that is the DNA of our brand.”

The 56-year-old Schnatter founded Papa John’s in Jeffersonville, Indiana after he installed a pizza oven at his father’s tavern. The business eventually grew to over 5,000 locations with annual revenues north of $1.7 billion. 

Following the NFL anthem controversy, Schnatter stepped down as CEO when comments he made during the company’s third-quarter conference call blaming the league for slow sales sent shares spiraling down 11% after hours – knocking $70 million off his estimated $700 million net worth. The company later apologized for the “divisive” comments.

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It seems that widespread suspicions that Tesla CEO Elon Musk resorted to cutting corners in his pursuit of ramping up Model 3 production to meet his lofty production targets may be valid.

Martin Tripp, the former Tesla engineer who was accused of trying to “sabotage” the company by Musk, is alleging several egregious safety violations that, if true, could destroy what remains of Musk’s tattered credibility.

In an email sent by Meissner Associates, a law firm which has represented whistleblowers to the SEC and which was retained by the whistleblower,  Tripp alleged that Tesla made misstatements to investors about placing batteries with holes punctured in them into vehicles to help pad out its Model 3 production numbers in pursuit of Musk’s goal of producing 5,000 Model 3s a week.

Tripp’s claims remind us of some inconsistencies highlighted by Vertical Group’s Gordon Johnson, who pointed out that some of the supposedly “finished” cars had been labeled “factory gated”, meaning they still required additional testing and quality inspections.

Tesla shares dropped on the headline, but have since pared some of their losses:

 

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Call it “Rodrik’s Trilemma” for the Emerging Markets: the combination of higher rates, rising oil prices, and a stronger dollar has historically been a “terrible trio” for EMs according to Goldman’s head of FX, Jeff Curries, who writes that as higher funding costs and capital flight to the US force domestic deleveraging, the pressure on EMs tends to be so great that these periods don’t last long: i.e. a short circuit event takes place, usually in the form of a market crash. And, as the subsequent damage lingers, the trio often ushers in weaker EM economic growth.

We bring this up because a “terrible trio” is precisely the environment under which emerging markets currently find themselves in, and as Currie points out, “these trio periods signal one of two events: 1) a mid-cycle pause or 2) an end-of-cycle turning point”, i.e. a global recession, usually accompanied by a market crash.

To be sure, conceding that a “terrible trio” environment has brought us to the end of the current cycle would not be prudent for Goldman which still remains resolutely bullish on the global economy and risk assets (just last month Goldman upgraded tech stocks, expecting years of upside for the FANGS).

So what does Goldman expect? Here is Currie with the baseline forecast:

We see several reasons why the current trio likely signifies the former. First, the rates curve is not inverted as it was during previous turning points (and negative term premia now make it somewhat questionable if inversion of the yield curve would even warrant as much concern as in the past). Second, commodities have far more slack (barring a large geopolitically driven supply disruption). And third, the real US dollar trade-weighted index is not nearly as strong as in past trio periods.

Of course, that is the best case outcome in which the “short circuit” emerges without toppling the house of cards.

However, there is also a downside case: should current trends persist, and if higher rates and rising oil and commodity prices are not accompanied by a weaker dollar, the current EM problems will likely intensify warns Currie.

Case in point: The trucker strike in Brazil this year—and the related hit to activity—occurred as oil prices denominated in Brazilian real reached the highest levels on record.

Which brings us to the next topic: The virtuous and vicious cycle of rates, oil, and the dollar. 

Here the Goldman analyst argues that most of the 2000-2010 period was characterized by lower rates, rising commodity prices, and a weaker dollar. In other words, “this was a virtuous cycle.”

Rising oil prices weakened the dollar and generated excess savings  that were repatriated into US debt markets. This resulted in lower US yields, which reduced funding costs to EMs. Lower funding costs in turn led to more demand for commodities and commodity price reflation. In all, this virtuous cycle led to the three “Rs”: Reflation, Releveraging and Re-convergence of central bank policy. This dynamic was also on display during late 2017 and early 2018.

However, the danger is that taken too far, this virtuous cycle can, and eventually will reverse into a vicious one of higher rates, declining commodity prices, and a strong dollar, shifting the three “Rs” into the three “Ds”: Deflation, Deleveraging, and Divergence in central bank policy.

This was the case in 2014-2016 when higher funding costs forced EM deleveraging, which reduced commodity demand and reinforced lower commodity prices. In turn, lower prices reduced excess savings and helped strengthen the dollar.

It took the Shanghai Accord of 2016 to halt the vicious cycle when China unleashed on what was at the time a historic standalone releveraging episode, one which promptly provided support for global markets and developed economies.

And now, a little over two years after the Shanghai Accord, it’s time for another short circuit as there is one notable constraint on the virtuous cycle: US oil demand. Currie explains:

Today, a virtuous cycle could not run as long as it did in the 2000s because in many EMs, savings now equals investment, so higher commodity prices create more real-world demand and less excess savings. Furthermore, the US no longer runs a
large current account deficit driven by oil. Another key difference is the US appetite for oil. Historically, Chinese demand was the main driver of commodity prices and thus played a major role in these reinforcing cycles. Even during the boom in US shale oil production in 2015, US supply was only a part of the story; Chinese demand for oil and commodities collapsed during that period. Today, US oil demand is growing like Chinese oil demand, consistent with a strong US economy. At the same time, supply disruptions in places like Venezuela, Libya, and now Iran have plagued the oil market, making the rise in oil prices that much less palatable.

So what is needed to reverse the vicious cycle and make into a virtuous again? Goldman believes that one of the three components: rates, dollar or oil, has to snap, or as Currie says, “something’s gotta give.“

The bottom line is that some part of the trio has to give for EMs to regain solid footing. We agree with our FX strategists that the most likely candidate is the dollar, especially as oil fundamentals remain tight even with the recent OPEC+ announcement of additional oil supplies.

For now however, with the Fed continuing to tighten, this does not appear like a realistic possibility. What about oil?

The Trump administration has tried to talk down oil prices, and also has some tools to push prices lower if these efforts to convince OPEC to further boost production fail. Ultimately, the president could tap the Strategic Petroleum Reserve (SPR), and there is a precedent for doing so to tame oil prices around elections.

And here a warning: “during a past trio period in October 2000, President Clinton turned to the SPR.” However, at least in that instance, Democrats still lost the election, and recession ensued. 

As for the most recent period, the financial crisis, some have argued that it was oil’s surge to $150 that prompted the global economic collapse that unleashed a deflationary wave upon the world, concurrently with the financial crisis.

In other words, unless the concurrent surge in the dollar, in oil and higher US rates is somehow halted, there is only one possible, if unpleasant, outcome.

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Authored by Michael Lebowitz via RealInvestmentAdvice.com,

In professional baseball, there is a performance standard called the Mendoza Line, a term coined in 1979 and named after Mario Mendoza, a player that struggled to hit consistently throughout his career. The standard or threshold is a batting average of .200. If a player, other than a pitcher, is batting less than .200, they are not considered to be of professional grade.

Investors’ also have a Mendoza Line of sorts. This one, the yield curve, serves as an indicator of future recessions. Since at least 1975, an inverted yield curve, which occurs when the 2yr U.S. Treasury note (UST 2) has a higher yield than the 10yr U.S. Treasury Note (UST 10), has preceded recessions. Currently, the 2s/10s yield curve spread has been flattening at a rapid pace and, at only 0.33% from inversion, raises concerns that a recession might be on the horizon.

Interestingly, the Federal Reserve (Fed) recently introduced the merits of a new yield curve formula to supplement the traditional curve and better help forecast recession risks. Might it be possible the Fed has brought this new curve to the market’s attention as it does not like the message the traditional curve is sending? Given that the Fed Funds rate remains very low despite recent increases, is it possible the Fed is desperately attempting to increase the monetary ammo available for the next recession?

Regardless of the Fed’s intentions and whether the market takes the Fed’s bait and buys into a new recession warning standard, understanding the differences between the traditional curve and the new curve provides valuable insight into what the Fed’s reaction function might be regarding enacting monetary policy going forward.

Traditional 2s/10s Curve

*In this article we solely refer to traditional yield curve represented by UST 2 and UST 10. There are other curves that use different maturities and credits which provide value as well. 

The yield on the UST 10 not only reflects the supply and demand for ten-year government debt securities but importantly embedded in its yield are investors’ expectations for inflation and growth. These expectations are influenced to some degree by the Fed’s monetary policy stance.

The UST 2, on the other hand, is much more heavily influenced by the Fed Funds rate set by policy-makers and less so by long-term growth and inflation expectations.

Therefore, the UST 10 provides information about how borrowers and lenders view future economic activity and inflation, while the UST 2 affords us insight into how the Fed might change interest rates in the future. It is this intersection of the Fed’s interest rate policy and the heavy reliance on debt to fuel economic activity that makes the 2s/10s yield curve an especially compelling indicator today.

The graph below charts the correlation between Fed Funds rate expectations, as quantified by the rolling 8th Fed Funds futures contract, and benchmark maturity Treasury securities. The 8th Fed Funds contract denotes market expectations for eight months forward. It is the longest contract available without compromising price consistency due to illiquidity.

* = interpolated data

Data Courtesy: Bloomberg 

From 2000 to the present, the correlation of UST 2 and Fed funds futures is a positive 0.80. In other words, 80% of the price change of the UST 2 is explained by expectations for future rates of the fed funds rate. As shown, correlation declines as the time to maturity increases. The relationship between the UST 10 and Fed funds future is .56, which is significant but less dependent on Fed Fund expectations than the UST 2.

The difference between how investors price UST 2 versus UST 10 help us contrast expectations for economic growth/inflation and monetary policy. When the curve inverts, the market is warning us that the Fed’s monetary policy is restrictive or in market terms, tight or hawkish. In such an environment banks are not very willing to lend as their cost of borrowing does not provide enough profit margin to cover credit losses and meet profit thresholds. Conversely, when the curve spread is wide and monetary policy is deemed easy or dovish, banks are in a much better position to extend credit.

While there are many explanations for why the curve is flattening rapidly, the consensus seems to be that inflation and the long-term economic growth outlook for the future are benign despite a recent spurt in economic activity. In fact, the Fed’s long-term projected rate of economic growth is only 1.90%. Fed Funds are currently 1.75-2.00% and expected to increase at least two or three more times. The combination of views necessarily flattens the yield curve and importantly makes lending less profitable.

The New Curve

What if your local weatherman forecasted weather not based on atmospheric conditions and other scientific data but instead on his own forecast. “I dreamt it will rain in three days, therefore my forecast is for rain in three days.” His prediction method, if uncovered, would probably lead him to seek a new career.

The weatherman’s forecast is a good way to describe the new yield curve the Fed has recently publicized. This curve is calculated by comparing the current three-month rate for Treasuries versus what that rate is expected to be six quarters from now. The forward rate is calculated using the current rate and the interpolated rate on 1.50- and 1.75-year Treasury notes. Do not get caught up in the complexity of the math but in laymen’s terms the curve is simply a forecast of what the market thinks the Fed will do. Let that bit of recursive logic resonate before reading on.

Said differently, the Fed imposes unnatural control over the shape of the new curve. Consider again the correlation table above. For Treasury securities with two years to maturity or less, expected Fed policy has a strong influence on yield. Therefore, by saying they intend to hike interest rates, the Fed also influences the shape of their new yield curve metric. The logic behind the new curve logic confounds what they claim is a pure insight into expectations for a recession.

The Fed is not coy about making that clear as witnessed in the most recent FOMC minutes:

The staff noted that this measure (new yield curve) may be less affected by many of the factors that have contributed to the flattening of the yield curve, such as depressed term premiums at longer horizons.

Click Here for more information on their new curve. 

Comparing Curves

The following graph compares the traditional 2s-10s curve and the new curve with recessionary periods represented by gray bars.

Data Courtesy: Bloomberg

As shown above, the orange line representing the traditional curve and the new curve in blue are well correlated and have both dependably warned of recession about a year or two before the beginning of previous recessions.

Closer inspection of the last six years, as shown below, however, yields a very different story.

The traditional 2s-10s curve spread is falling at a decent pace and has been in decline for the better part of the last five years. Conversely, the new curve has been in a slight uptrend over the same period. Clearly, the curves are sending different messages.

Calling Foul on the Fed

There is one key difference between the two curves that is vital to appreciate. The Fed has much more control over the shape of the new curve versus the traditional curve. For instance, if the Fed promises more rate increases and continues to deliver on said promises, there is a high likelihood the new curve will stay positively sloped. The traditional curve, as shown earlier, is much less influenced by the Fed directly. Instead, it is quite likely the traditional curve, in that situation, would continue to flatten and invert as further rate hikes are thought to have a dampening effect on economic growth and inflation. Per the Federal Reserve –“Periods with an inverted yield curve are reliably followed by economic slowdowns and almost always by a recession.”

We believe the Fed is introducing this new curve to provide cover to allow them to keep raising rates. The trend and impending signal from the traditional curve is leading investors to second guess the Fed and their tightening campaign. The traditional curve could cause investors to lose confidence in the Fed. Given the state of excessive asset valuations built largely on confidence in the Fed, this presents a big problem. If, on the other hand, investors buy into the new curve and its upward sloping shape, might they be persuaded a recession is not in sight and their confidence in the Fed will remain strong?

It’s important to remind you why the Fed may be particularly anxious about raising rates. During the last two recessions Fed Funds reductions of 5.25% and 5.50% were required to stabilize the economy. Additionally, in 2008/09 the 5.25% rate cut wasn’t enough, and the Fed introduced QE which quintupled the size of their balance sheet. With Fed funds currently at 1.75-2.00%, the Fed has much less ability to stimulate the economy if economic growth were to slow.

Summary

In baseball, .200 is the line in the sand. It is widely accepted and understandably so given over 150 seasons of baseball. In economics, a flat or inverted 2s/10s yield curve is the line in the sand. It is widely accepted and its validity is broadly discussed in prior Fed research. Changing the Mendoza line to say .150% would allow some current substandard players to achieve “professional grade,” but the quality of players would remain the same. Likewise, changing the markets recession warning may change the perspective of some investors but will it nullify a recession?

The Fed may not like the market’s perceptions and implications of a flatter yield curve but changing it to one of their liking is not likely to alter reality. Importantly, if the goal of the current Fed is to convey a message that allows them to raise rates further, they may have found a good alternative. Our question is, however, in the name of transparency, why not just say that is the objective rather than sacrifice integrity?

Regardless of whether the Fed’s version of the economic Mendoza Line changes, we simply urge caution based on the signals of the traditional curve. Redefining key measurements of economic conditions may alter the eventuality of a recession but it will not make long-term expansions or contractions in the economy any more or less likely. It will only confuse and conflict Fed members charged with dispensing prudent policy.

We leave you with recent thoughts from the Federal Reserve on the value of the traditional 2s/10s yield curve:

“Forecasting future economic developments is a tricky business, but the term spread (traditional 2s/10s yield curve) has a strikingly accurate record for forecasting recessions. Periods with an inverted yield curve are reliably followed by economic slowdowns and almost always by a recession.” –March 2018 Economic Forecasts with the Yield Curve Federal Reserve of San Francisco.

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As the hopes and dreams of the end of the trade war – that delusionally sustained around 800 Dow points of exuberance in the last few days – are dashed at the altar of Trump tariff reality, it appears the world’s sovereign wealth funds are well ahead of the looming storm.

And away from 3 or 4 mega tech stocks, the broad US equity market is not ‘breaking out’ as many hope…

In an annual report by asset manager Invesco, over a third of sovereign investors plan to cut their equity exposure over the next three years after a strong run in 2017, citing trade wars, geopolitics and high valuations as headwinds to performance.

Reuters reports that the report, which is based on interviews with 126 sovereign investors and central bank reserve managers with $17 trillion in assets, found equities had overtaken bonds to become the biggest asset class in portfolios, averaging 33 percent. This is up from 29 percent in 2017.

Nearly half of sovereign investors are now incrementally or materially overweight equities, but while 40 percent said they were happy with the status quo, 35 percent plan to reduce their equity exposure over the medium term, Invesco noted.

Alex Millar, head of EMEA sovereigns at Invesco, said survey participants had been “pretty far-sighted” in highlighting the risk of a trade war early in the year.

“Equities had a good run last year, but this hasn’t caused investors to change their long-term expectations – they think returns going forward will be tough,” said Millar.

Maybe the sovereign wealth funds are part of the SMART money that is exodus-ing US equities at an unprecedented pace…

Ironically, as SWFs abandon stocks, Central Banks are venturing deeper into alternative assets and ramping up their risk-taking.

Government-backed agencies have traditionally focused on preserving capital, but, as Bloomberg reports, with some government-bond yields having slumped below zero, central banks are increasing their bets (of their trillions of dollars of foreign reserves) on higher-risk mortgage-backed securities, corporate debt, equities and emerging-market debt.

“Central bank reserve managers typically wake up in the morning figuring out how to avoid losing money,” said Alex Millar, head of EMEA sovereign and institutional sales at Invesco Ltd. But now, “the requirement for return is creeping up.”

“They’ve had to look for asset classes outside of their traditional comfort zone,” Millar said. “They’re beefing up their risk-management capabilities, their understanding of asset classes, having to educate their board on why they need to do that.”

Central banks have earmarked an average of about 14 percent of their assets for non-traditional investments, the survey showed.

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Via Global Macro Monitor,

Excellent CNBC interview with David Stockman, President Reagan’s head of OMB, who speaks his mind and never holds back.    Some dismiss him as a perma-bear and doomsayer.

We certainly don’t, just has been a bit early, like every analyst and economist worth their salt.   His analysis and model are sound.

By the way, if you ever meet someone who claims they always top tick or buy every bottom,  and have perfect timing, run as fast as you can.

Moreover, the former “beltway boy wonder” doesn’t have to make his money trading and can maintain his conviction without going bankrupt or losing his career.   He will eventually be right.   It’s all timing, my friends.

Listening to him today, we respect him even more for his intellectual honesty.   We have always perceived Mr. Stockman as a supporter of the president, but we could be wrong.

He never allows his politics to warp his analysis.  Rare and refreshing.

Taken To Woodshed

He was famously “taken to the woodshed” by President Reagan for his statements in a 1981 Atlantic Monthly article, that “supply-side economics — the backbone of the Reagan economic revolution – was a ‘Trojan horse’ that would ultimately benefit the rich.”

He laid it all out there today and held nothing back.

Massive trade war won’t solve deficits, says former Reagan WH budget director from CNBC.

Money quotes from today’s interview *

• Imbalances are not the result of bad trade deals

• We have had 43 straight years of large and growing current account deficits, that is a monetary issue

• A trade war is not going to solve it…let interest rates find their right level

• The fact is, we are heading into a massive trade war in the world

• Trump doesn’t know what he’s doing at all. He is making it up. He is a hopeless protectionist with a 17th-century view of the world

• We have an absurd policy — dangerous, stupid. The worst that I’ve seen since my whole career started in 1970 under [President Richard] Nixon, and he did some crazy things

• The market marches to new highs until it doesn’t

• In 1990…the average tariff in China was about 30 percent, the average tariff in China today is 3 ½ percent. It is not an issue

• What they [Trump administration] are objecting to is China’s policy of “no ticky, no washy.” In other words, if you want to come to China and do business, you have to be in a joint venture and share your technology

• If somebody wants to go to China so they can come on CNBC and brag they are in a growth market then they ought to put up with the local regulations

• Don’t start a trade war and throw the soybean farmer under the bus because of some big business lobby in Washington is whining about China’s terms of business

*the interview was concluded before the announcement of a 10 percent on an additional $200 billion of Chinese imports was published by the USTR after the market close.  

Tough words.

No Reagan Moment On Free Trade

Sorry,  Mohamed,  we love you but there will be no “Reagan Moment” for International Trade.  We hope we are wrong, and we could be, but we don’t think so.        

Author adminPosted on July 11, 2018Categories zerohedgeTags finance, newsLeave a comment on Trump’s Bite May Be Worse Than His Bark: Stockman Slams “Absurd, Dangerous, Stupid” Policies