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Afternoon Note

The Scorpion & the Frog

By Charles Payne, CEO & Principal Analyst
5/9/2019 1:16 PM

Image result for scorpion

Wall Street is having one of its classic hissy fits over the notion the United States will trigger additional sanctions on Chinese imports at the stroke of midnight.  

Sure, this will negatively impact our economy, but it will not derail America’s economy.  Moreover, this new level of sanctions will add pressure to a Chinese economy that is currently under huge strains.

Stories about why China decided to go back on items covered and agreed upon is a fun pallor game, but make no mistake, they didn’t sense weakness in President Trump.  On the contrary, Trump has rightfully touted a strong economy on most days and calling it the strongest ever. 

As for pressuring the Fed to cut rates, those that think this has anything to do with weakness are using an old playbook and orthodox economic conventional wisdom that was thrown out the window in November 2016.  President Trump wants the Fed to help take three percent Gross Domestics Product to four or five percent.

I think this whole thing harkens back to the old story of the scorpion and the frog.  A scorpion comes upon a frog at the edge of a lake, and says, I won’t sting you if you take me across.  The frog accepts the promise and proceeds to take the scorpion across the lake.  Halfway through, the frog feels a sting and immediate body changes.

Frog: You stung me

Scorpion: Yes, I did

Frog: But we’ll both die

Scorpion: Yes, I know

Frog: Why?

Scorpion: It’s my nature

So many folks with experience negotiating with Chinese companies and their government warned this kind of switch could happen as a last-minute gambit.  In a way, I get it, as the Chinese had nothing to lose by giving it a shot.  Heck, they have gotten away with murder for decades as administration after administration simply blinked when it was time to take action (going to WTO is a form of blinking).

China’s grand are powered by a determination rooted in the Opium Wars and Boxer Rebellion, and they must reconcile that with the idea of slowing progress toward their future goals. 

It’s one thing to be the scorpion during negotiation, it’s another to sink their own economy.  Maybe tariffs must go into effect to get through the process.  We’ll know in a few hours.

Meanwhile, great opportunities abound, so be ready to take advantage.

Message of Market

The market is surging off the lows of the session.  I’m not taking that bait, but it underscores that once this issue is sidelined, the snapback could be swift and significant.


Comments
1-China is following the teachings of Sun Tzu by backing out they are putting their enemy off balance and wearing them down. Problem is Donald Trump doesn't wear down.
2-China doesn't put as much stock in a paper agreement like Western civilization does. So all this negotiation for nothing. They are buying time for a China backed JobBiden (#JoeChina) to run.

Here is what President Trump should do. Stop the negotiations - period.
Inform China that we have a new Tariff operational model.
US Tariffs on China = China Tarrifs on US + Theft.
Its that simple.

Every US company MUST second source their supply lines out of China NOW.
Divest in companies dependent solely on sourcing from China now.

Chinaís real numbers are very bad and the govt is piling on debt many times faster than recent history. The bubble is bursting.

Ken Knight on 5/9/2019 1:34:23 PM
It's their nature for sure. I have wined and dined them in the oil patch with nothing but a dinner bill to pay. They are for themselves only and you hit it on the head, a Determination to be number 1 and Wants the Gold.

Pastor Ken McKay on 5/9/2019 1:38:19 PM
ANYBODY THAT TRUSTS CHINA IS A COMPLETE FOOL THEY WILL RENEGE ON ALL AND EVERYTHING ALL THEY WANT IS TO BURY THE USA MEANWHILE WHILE YOU ARE WAITING TO YOUR SO CALLED JUMP IN THE MARKET IS COLLAPSING THE NEXT THING YOU WILL SAY IS YOU
ARE OUT OF THE MARKET TARIFFS ARE COMING AND THE MARKET MAY CRASH

E on 5/9/2019 1:54:01 PM
Excellent analysis, Ken. As the Chinese might say...."You one SMART cookie!"

James Warlin on 5/9/2019 5:03:45 PM
 

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