Bankers and President Trump continually used the media as a pawn to goose US stock markets higher. For a President that publicly states his disdain for US Central Bank Chairman Jerome Powell (privately, he really doesn’t) and repeatedly harps about the incompetence of US Central Bankers (privately, he doesn’t really believe this either), President Trump has executed US Central Banker tactics of dressing up empty news as massively important news to goose US stock markets higher whenever desired. For example, US Central Bankers often use language, and language alone without any follow-up action, to repeatedly goose US stock markets higher. By merely issuing the slightest hint that they may cut the Fed Funds interest rate in the future, Central Bankers have learned that they can goose stock markets higher without actually having to follow through on their hints. Sometimes, they can even accomplish this without even directly indicating that they will cut interest rates in the future but by simply dropping one word that was contained in the prior month’s press release about interest rates. For example, in June 2019, US Central Bankers published a press release in which they merely dropped the word “patient” in a paragraph that discussed possible future interest rate cuts. The omission of this single word was enough to goose US stock markets higher for the entire month of June off a short-term low at the start of the month, even though the US Central Bankers did not even cut interest rates until the end of July. And then, when they finally cut interest rates at the end of the next month, they received a double bonus of artificially and successfully sending US stock markets higher for the entire month of July as well, even though they only cut interest rates in one of the two months during which they manufactured a two-month rally.
The reason such flimsy and transparently deceptive tactics can be deployed in capital markets, in which billions of market value can either be conjured up, or made to vanish with just words, is because high frequency trading algorithms constantly scan newswires and then make decisions to cumulatively buy or dump billions dollars of stock based upon the discovery or omission of words in economic news releases, especially press releases issued by Central Bankers, without the context of any human intellect. These computer algorithms are not programmed to assess the degree of credibility of these statements, or even to back-check prior issued statements to determine if future actions were congruent with prior promises upon which decisions to trade billions of dollars of stock were made. Consequently, bankers learned that they could use language alone, regardless of true intent, as a tool to move markets in the desired direction. Once President Trump observed Central Bankers using this tactic over and over with success, he of course, adopted it himself in his trade war with China to goose US stock markets higher without actually achieving any significant progress towards resolution of the trade war.
Everyone knows that the first rule of negotiations is to force the other party to make the first offer and show their hand first. For example, if you were negotiating a salary at a new corporation and the interviewer asked you about your salary expectations, our job in this negotiation is to force your interviewer to name a salary figure first. Whomever blinks first and reveals his or her hand to the other will lose the negotiation in obtaining the desired result well over 90% of the time. Information is power in negotiations, so forcing a party to reveal information first can always be leveraged to one’s advantage for anyone mildly skilled in negotiation tactics. The second rule of negotiation is that if you don’t have inked signatures on a contract, you don’t have a deal. We have seen this time and time again in professional sports, when star athletes verbally commit to a team, a newspaper or online sports media site reports that a team has secured the services of this star athlete, and then days or weeks later have to issue a disclaimer that rebuts their initial report when the star athlete changes his mind. In an attempt to “scoop” their competitors, media sites often report tentative deals as concrete deals, only to be embarrassed by having to withdraw their report after an athlete backtracks on his verbal commitment.
Likewise, if you just observed the boost in US stock markets at the end of last week and took a cursory glance at financial news headlines, you may have assumed that significant progress had been made in the US China trade war, in which both sides already made significant concessions to each other in disputed areas. However, of you drilled down into the articles that led to a US stock market boost last week, you would quickly note that there have been no signatures of any kind on a concrete trade deal but that only that a “preliminary” agreement had been reached in “principle”, which means that no agreement of any kind or significance was reached. Someone, this important rule of reporting a deal somehow seems to have escaped every single US mainstream financial journalist, that are happy to merely be a conduit of parroting whatever narrative he or she is asked to repeat.
However, just like the US Central Bankers carefully release statements of losing “patience” with a slowing economy to goose US stock markets higher without taking any action, President Trump has learned how to double goose US stock markets as well, by announcing agreements reached in “principle” to provide an initial pop to US stock markets. that can then be compounded by a second announcement of a real agreement, should one happen. However, I am among the minority that do not believe that last week’s US media declarations of “initial” trade agreements between the US and China actually have any teeth. To illustrate how little backbone comprises the “agreement” to end the US China trade war, a US Farmers for Free Trade representative, Brian Kuehl stated, “This agreement seemingly does nothing to address the crippling tariffs farmers currently face. The promise of additional ag purchases is welcome news but details on timeline, price, commodities and many other questions will have to be answered.” So, the preliminary agreement, which was only phase one of a three phase agreement that still needs to be hammered out, does not contain any significant details about significant points of contention in the agricultural disagreements of the US Chinese trade war. Does this sound like an agreement to you?
Though President Trump stated to the American Press that China was “relieved” that a trade agreement is on the horizon, I could find no significant sentiment expressed by any Chinese or English language top media sites in China. I discovered zero articles about any imminent US China trade agreement, and only headlines that trade teams were urged to make “positive headway” in negotiations and that resolving the trade disputes would require a lot of patience, and that “uncertainty hovers over many issues.” In fact, the only headlines I was able to discover on Chinese media sites that remotely reflected the headlines reported in US media were the Chinese media websites that quoted a US media website’s report about the US China trade war. Otherwise, uncertainty about the US China trade war was still the dominant message in the Chinese media at the end of last week, especially on Chinese language news sites. In fact, this statement, contained on a top Chinese news sites, was fairly representative of China’s reporting of Trump’s talks with Chinese President Xi:
“China has never provoked a conflict, nor will it shy away from one. The country is fully aware of the complexities and difficulties in resolving its economic and trade issues with the United States, and understands that there are snags along the way. Yet, by having the worst in mind, making the most adequate preparations and striving for the best outcome, China can safeguard its core national interests and the interests of its people.”
Such different narratives about the same talks from US and Chinese media make it difficult to believe that the press in these two different nations were even observing the same trade talks, as the US media chose to sell the story that a first round of agreements were just about done, while the Chinese media warned that the road ahead in resolving the US China trade war could be slow and require an extended period of time. One only has to look into the past just a few months ago when US Treasury Steve Mnuchin lied to the world and said that the US China trade war was all but over and stated, “We were about 90 per cent of the way there [to a trade deal] and I think there’s a path to complete this”, to understand that much of the “news” the Trump administration has released about the US China trade war is just an extension of the US Central Banker Tactics for Moving Markets Without Doing Anything 101 course. In the months that followed Mnuchin’s statements that a US China trade deal was all but done, his statement was exposed as a complete fabrication when no concessions materialized in the following months, and conflict escalated instead. Even today, the details for just phase one of a three phase trade agreement have not even been agreed upon. In other words, today on 15 October 2019, 33% of a trade agreement between the US and China has not even been agreed upon, though Steve Mnuchin promised that it a deal was already 90% completed back in June of this year.
So do I believe in the headlines of the US China agreement reported in US media last week that completely diverged from the narratives of Chinese language media sites in China? If I did, I would have to turn off my b.s. meter and state my belief in the tooth fairy and leprechauns as well.
