Deal or No Deal?

What seemed like final climax of trade negotiations turned out to be another round of back-and-forth negotiations between Americans and Chinese (from last count, they are in 11th or 12th round of negotiations). Last Sunday President Trump surprised the world and markets with his tweet that US is going to put 25% tariffs from Friday May 10. Markets took the note and tumbled 2-4% across the world. While Chinese team did come to Washington to continue negotiations, on Friday US increased tariffs from 10% to 25%. Chinese reaction was relatively mild but future of further trade discussions is uncertain. Markets and companies were expecting that Trump and Xi will sign deal in May or at most by G20 summit in Jun. Now that's most unlikely unless both sides back off little bit in give-and-take of negotiations. Both sides are banking on their relative expertise and history. On one side we have president who wrote "The Art of the Deal" book while other side prides itself on legacy of "The Art of War" written by one of the most revered military strategist Sun Tzu. President Trump wants a deal in 2019 so he can claim victory during Presidential Election campaign while Chinese would rather wait post 2020 and hope they don't have to deal with Trump. Now that Trump has put the tariffs and if negotiations don't proceed fast, he promises to put on remaining $300B plus imports, Chinese may feel some urgency. However "Art of War" says "If you know the enemy and know yourself, you need not fear the result of a hundred battles" That means Chinese could be in this for long haul and willing to put up with short-terms pain. So are Americans and Chinese in "Mexican Standoff"? The external event which could force both Trump and Xi's hands would be sudden sell-off in markets (similar to last quarter of 2018) and economic downturn. After all no one wants to rock the boat or in worst case repeat of 1929 or 2008. So as I mentioned in my last blog, one must pay attention to "Sell in May and go away" till clouds on trade negotiations clear up!
/Shyam

"GUI" of Goldilocks Economy!

In today's world of UI/UX, people don't normally talk about its original term of "GUI" which means Graphical User Interface. In App world, it's all about UI/UX. The first GUI based computer was invented in PARC in 1973. Apple later popularized it with MAC. Apple then changed GUI to UI/UX with iPhone introduction by unleashing the App world. Now most of the companies developing apps have separate groups focused solely on UI/UX! But let's talk about another GUI!
 GUI of economy is about (GDP) Growth, Unemployment and Inflation. And given recent Q1 numbers demonstrate that we are in "Goldilocks" economy - not too hot, not too cold. Let's look at:

GDP Growth: On back of major market churn in Q4, 2019 started with fears of growth falling below 1%. Slowly as quarter progressed, growth forecasts got revised to 2%. However actual GDP growth came in at 3.2% which was much stronger than anyone (except may be markets) was expecting. The adrenaline of Trump tax cuts got over in 2018. So is this growth now real? Only rest of 2019 would tell the real story if US economy can grow 3% sustainably.

Unemployment: At 3.6%, its lowest unemployment in 50 years. Even in roaring 90's unemployment did not reach this low. What's driving it? Wasn't it supposed to be other way in which automation, robotics, trade, manufacturing moving China/Mexico supposed to be killing jobs. Yes - all of these factors are killing old jobs but at same time creating new opportunities like "social economy" jobs, retail jobs moving to Amazon warehouse jobs, travel agent jobs moving to "Instagram moment" jobs. America is best in re-inventing its economy every 2-3 decades and this time is no different.

Inflation: 50 year lowest unemployment is supposed to create inflation - that's what get taught in economy classes in colleges. So why is inflation still at 1.5% and having trouble reaching fed target of 2% and cause Fed to worry? Well - this is something to be researched and could be a good topic for PhD in Economy. My hypothesis is that forces of automation, geek economy, "flat world", mobility of goods and people, plenty of energy sources (unlike in 70's when Oil embargo caused inflation to jump to double-digit) are changing the way inflation used to work. It's no more just linked to unemployment or commodity prices. And it's good for world population as long as low inflation does not turn into deflation.

That's why I call today's economy in America as Goldilocks economy! Now all that change if President Trump really follows thru its threat of putting tariffs on most of the goods coming from China. It's good negotiating trick but can risk de-railing the confidence and markets! And its that time of year when the saying on Wall Street "Sell in May and Go Away" could have relevance!

/Shyam