An offer you can't refuse ... the Prime Minister's proposal to Cabinet this week. Like a scene from a Godfather movie, the heads of the families were driven to a location, deep in the heart of the country. Mobile phones were immobilized, chauffeurs were locked in the kitchen and car keys were thrown into the centre of the room. No one leaves until the deal is done. Anyone resigning leaves on foot. It's a one mile walk to the local taxi firm. All local cab drivers had been vetted for security, confidentiality and a deep belief in the European Union. It would be a rough ride home. Tensions were high as the PM laid down the options.
Airbus boss, Tom Enders had warned this week, the government was clueless on Brexit. "Theresa May has “no clue” on how to pull off Brexit without severely damaging the UK" he said. It was the company’s "fiercest broadside yet against a floundering and bitterly divided Government" according to the FT.
"Government is clueless on Brexit" says Airbus boss
Enders had queried the outcome of the Chequers meet. "We can't be sure if there will be black smoke, white smoke or no smoke". He needn't have worried. In the end, it was another round of "Smoke and Mirrors".
Agreement was reached on something Brussels cannot really agree to. Why should Brexiteers manifest dissent when Barnier will block the deal on their behalf. Preaching to the converted, a measure in pragmatism. Say yes and go home reunited with mobile phone, in a chauffeur driven limousine, playing Candy Crush Saga to ease down the adrenalin rush. Yep you may even get to dodge the meeting with Trump next week.
Cabinet has agreed our collective position for the future of our negotiated position with Europe. Johnson will be fired if the deal is undermined. We have developed a "facilitated customs arrangement" said May. "It's crazy" said the Foreign Secretary. In a sense he is right. The deal allows a truly global Britain to set up independent trade deals with the rest of the world. Access to the single market will be secured by charging EU tariffs on goods to be traded into Europe. The UK will have separate tariffs for goods destined for the domestic market. Free movement of Labour will end but the introduction of a "mobility framework" will allow EU citizens to work in Britain.
It's another fudge which fails to recognise the complexity of supply chains in an integrated manufacturing operation across Europe. It overlooks rules of origin. It ignores the fundamentals of the four freedoms on goods, services, capital and labour.
Unipart boss John Neill had warned this week of the importance of friction-less trade for the UK car industry. 800 thousand jobs are dependent on a deal securing free trade and access to the single market. CBI boss Carolyn Fairbairn has made it clear, the Customs Union IS the solution until something better is on the table.
An offer which cabinet cannot refuse is a proposal the EU almost certainly will reject ... we won't have to wait long ... Brexiteers will complain of obstructionist Brussels dogma ... when they have been so accommodating and pragmatic ...
Largest trade war in history ...
China complained to the WTO this week. The US is launching the largest trade war in history. The White House announced tariffs on $34 billion dollars of Chinese goods. Washington's 25 percent duties went into effect at midnight.
China retaliated with tariffs on a hit list including soybeans, pork and electric vehicles. The US Chamber of Commerce condemned the move.
"China, the EU, Mexico and Canada have already retaliated or announced plans to retaliate with billions of dollars in tariffs on American made products. Tariffs imposed by the United States are nothing more than a tax increase on American consumers and businesses, including manufacturers, farmers, and technology companies.
Retaliatory tariffs imposed by other countries on U.S. exports will make American made goods more expensive, resulting in lost sales and ultimately lost jobs here at home. This is the wrong approach, and it threatens to derail our nation’s recent economic resurgence'"
"Tariffs threaten to derail our nation's economic resurgence ..." Says US Chamber.
The Fed warned against the trade war as did the WTO and the IMF. The last trade war in the 1930s didn't end well for the world or for the USA. In 1930, Congress passed the Smoot-Hawley Act. It was designed to protect farmers. Tariffs on many other goods were added to ensure support for the bill. Retaliatory tariffs followed. US exports of eggs to Canada fell from almost one million units to just 8,000 within two years.
Across the board, US exports fell by 40% in the two years after Smoot-Hawley. Unemployment increased as the Great Depression hit home. Many factors contributed to the Great Depression. The Fed to blame in part. The trade wars ensured the American problems were exported around the world.
This time the Fed is on the case. "Trade barriers are a dead end and destructive" said New York Federal Reserve President William Dudley this week. Yet the Fed is threatening to increase rates as the US economy continues to expand. 215,000 jobs were added to the payroll last month. The trend will deteriorate unless a truce is called in the march to anarchy ...
Monday Morning Markets ...
Last week we launched our Monday Morning Markets. It's a review we developed for Duff & Phelps some years ago. Time to bring it back now on our own book. The update will be released every Monday Morning at around 8:00am.
We look at key stock markets, bond markets, interest rates and currencies every week and monitor trends and direction in key areas. It's just for fun. We are not licensed for the giving of investment advice.
We have also launched the Monthly Round Up Page on The Saturday Economist web site. Here we publish our latest charts and data on the key indices of the UK economy. Next week the ONS will release their monthly GDP tracker for the UK economy. This will also feature on our round up page. It's a great source of data which we don't get chance to include in The Saturday Economist review every week.
Our Quarterly Economics Review is also available to members of The Saturday Economist Club. We are enhancing our product offer with The Saturday Economist, Monday Morning Markets, Monthly Updates and the Quarterly Forecast Update.
"Don't Miss Our Monthly Updates and the Monday Morning Markets"
We have also signed up with eToro to be included in the Monday Morning Markets Review. Gaël Monfils revealed last week "I invest myself using the social investment platform eToro. I can use it while traveling. It gives me some independence with my money". Monfils was profiled in the Fame And Fortune page in the Money Section of the Sunday Times last week. I checked out the site. In a sense I have been looking for eToro for many years.
eToro provides a suite of online investment solutions, regardless if you’re a newbie that is looking for a safe entry into the trading scene or an advanced trader that is looking for higher rewards. This social investment network is a great choice. It is FCA regulated. But you can start with a small portfolio of $1,000 dollars and trade without commission across a wide variety of stocks.
We have set up our "Empires of the Cloud" Fund with a start value of $1,000 to $10,000 dollars. A similar fund we modeled in a presentation at MBS in 2011, would have converted $10,000 dollars into $86,000 dollars today. You can set up your own account on eToro, and match mirror or follow the fund. We will update every week our progress in the Monday Morning Markets review. We are up 4% in the first week.
Use this link to sign up to eToro and we get a $20 dollar kick back. Looking to cover school fees, a holiday next year or provide for a nest egg. Why not follow or match our fund? All trading involves risk. Only use capital you are prepared to lose. This is a high risk portfolio, just for fun.
That's all for this week, we will be back next week, Have a great weekend.
The Saturday Economist
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.