Cyreenik Says

August 2019 issues

Trade War Time? Remember Smoot-Hawley!

Trump and China need to keep the Smoot-Hawley Act in mind.

The Smoot–Hawley Tariff Act was voted in in 1930 in response to the economic slowdown that was unfolding following the stock market crash in 1929. The goal was to build America's economy by building internal market demand for goods and workers. It decisively didn't work and that slowdown became the Great Depression of the 1930's.

Fast forward to 2019 and we have the ongoing Trump-China tariff spat. Is this going to "win" by building American businesses in some way? The historical pattern doesn't support this outcome, and today's stock market doesn't support it either. The market has been wobbling, not rising.

The lesson to learn here is that the secret to winning a trade war is doing more trading, not less. So take actions that promote trade, not discourage it.

This 23 Aug 19 WSJ article, Trump Lashes Out at China, Sending Markets Falling by William Mauldin and Alex Leary in Washington and Chao Deng in Beijing, talks about current market jitters being caused by the tariff disputing.

From the article, "Markets broadly held up following China’s tariff announcement and Mr. Powell’s speech but reacted negatively to Mr. Trump’s Twitter proclamations with the Dow Jones Industrial Average dropping more than 600 points, or 2.3%, yields on U.S. government bonds tumbling and many commodities prices falling."

Is California working to become the next Rust Belt?

Between the 1960's and the 1980's the US Midwest transformed from the Steel Belt into the Rust Belt. Is California working to go through a similar transformation?

Becoming a community that is a leader in business innovation is not easy to do -- there are both lots of obstacles and lots of competitors. And success doesn't guarantee even more success -- the obstacles and competitors don't go away, they just change in form over time. This means that complacency is a constant threat to any community that does gain a coveted leadership position.

California seems to be the contemporary example of getting complacent. The legislature and many community members are now getting vigorous about building obstacles to further growth and innovation happening in California communities. The more they succeed the sooner leadership will move on... and now it may easily move outside of the United States into some other part of the world, such as China.

This is something we Americans need to constantly keep in mind.

This 11 Aug 19 WSJ article, California Fostered America’s Tech Industry. It Is Becoming a Great Adversary. by Sebastian Herrera and Abigail Summerville, talks about California's laws and regulations getting more and more unfriendly to business, and innovative tech businesses in particular.

From the article, "California, the birthplace of the American tech industry, is emerging as a great foe."

As an example of an alternative, this 17 Aug 19 WSJ article, Silicon Valley Looks North as Tech Giants Expand in Toronto by Vipal Monga, talks about how Toronto is growing as a Silicon Valley alternative.

From the article, "Technology companies are hiring more workers in Toronto, attracted by the region’s diverse population of 6.4 million, a deep pool of skilled labor and cultural similarities to major U.S. cities like San Francisco, New York and Chicago."

This reminds me of how business growth in California sounded to the Cleveland business audience in the 1960's when I was growing up there.

Trump and the Chinese have provided a trigger -- will the Brexit Hangover start now?

Trump and China's decision to continue the tariff skirmishing is a potential trigger for starting the bear market that I call the Brexit Hangover.

About two years ago I predicted that the Brexit event would bring about a mild recession in two years. This prediction was based on the pattern I saw in both the Hong Kong Turnover and Y2K events. These both followed what I call an "End of the World" pattern. The pattern is that a community gets worried about an upcoming event that I define as an "end of the world event". While the community and the media talk about doom and gloom the community's business and financial markets get into a low profile investing mania -- the participants are more willing to take on riskier projects. Then, when the event turns into a "non-event" (something that happens smoothly with little trauma), the mania-fed markets and economies drop into a mild and short-lived recession. The Hong Kong Turnover created the Asian Flu recession, the Y2K created the Dotcom Boom and Bust, now Brexit will be creating the Brexit Hangover.

Has it has started? If so, we next get to see how long and how deep it goes.



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