The market doesn't know what to do. On the one hand, President Trump makes you feel confident that a trade deal can be done with the Chinese, maybe even as soon as the G-20 at the end of the month.
On the other hand, Vice President Pence makes you feel that unless the PRC overthrows its current government and installs a capitalist democracy there is nothing to be gained by talking.
It gets worse. President Trump intimates that there are lists and asks going on behind the scenes that make something magical a possibility. Vice President Pence is trying to contain the Chinese the same way we contained the Soviet Union. The big difference? Th Soviets were rich and powerful and totalitarian enough to be self-funding. Pence makes it clear that we are the ones that have been funding China's ambitions with our trade -- and now it is time to shut all trade down so they don't have enough money to continue to challenge us technologically, militarily and, yes, imperialistically.
And we are winning. How do investors know? Because Pence told us in his APEC speech: "China's largest stock exchange fell by 25% in the first nine months of this year, in large part because of our administration has been standing strong against Beijing's trade practices." Yep, Trump has started a Communist Bear Market and now it is time to finish it.
Now, what Pence leaves out is that he may have started the U.S. bear phase with his Hudson Institute speech calling for containment of the PRC because of its designs for world domination. This APEC speech was more about the need not to take the PRC's loans as part of its Belt and Road initiative, a multi-trillion dollar lending gambit that is meant to be the world's largest foreign aid program -- but one that comes with strings attached. "As we speak, we're all aware that some are offering infrastructure loans to governments across the Indo-Pacific and the wider world," Pence told the APEC audience. "Yet the terms of those loans are often opaque at best. Projects they support are often unsustainable and of poor quality. And too often they come with strings attached and lead to staggering debt."
The U.S., on the other hand, offers economic help as well as the help of our nation's companies, and together we offer a better deal. "We don't drown our partners in a sea of debt. We don't coerce or compromise your independence. We do not offer a constricting belt or a one-way road. When you partner with us, we partner with you and we all prosper."
And that's who we are suppose to be a few deal points away from having an agreement with? The rest of the speech is a reiteration of what we heard October 4, that the Chinese violate human rights, including right to religious freedom, while we will fight for the freedom of religious choice and will back our promises with military might.
If you toggle back to the October 4 speech, you know the real design is not to get better trade terms from the Communists but to topple the regime and get a friendlier one. Oh, sure, you could be naïve and think that what that speech implies is that if we get some concessions, some lowering of tariffs and the ending of sinister joint ventures where trade secrets are stolen as part of the deal to sell in China, we could have a deal.
You could easily choose to say it is all rhetoric and it's about getting a last minute deal to keep the tariffs at 10% and not 25%, a level that could solidify our own bear market, especially if the Fed keeps hiking. It's all part of the Art of the Deal.
But I have said repeatedly that this isn't rhetoric, it's containment -- and it may be only a matter of time before the president tries to shut down trade altogether to see if he can break their stock market and crack their financial system. I think that option should be included in any calculus about trading with China.
So, you can hope that the G-20 yields results. But I would say that Pence's continuation of the hardline containment policy makes that event much more binary -- and the odds increased dramatically this weekend that there will be no deal to be had, just a further extension of the cold war that began October 4 and seems to get hotter every day.