Phase 1 Trade Deal Compliance And Trump’s Re-Election Strategy

Guest post by Greg Presseau of Perennial Capital

Following Trump's election win, I read two books to better understand him and his behavior: Games of Strategy: Theory and Application and The Art of the Deal.  The game theory book was intended to understand how Trump thinks.  However, he is extremely volatile and that makes it difficult to predict his behavior thus it was difficult to apply theories to his decision making.  The Art of the Deal, however, was much more insightful.  In an old email I characterized him as:

"He (Trump) is a winner.  Looking strong is important.  He’s also incredibly sneaky and untrustworthy (whatever it takes to win…)…In other words Trump uses last minute tactics to: A) strengthen his position and B) ensure his position is not weakened…As an options trader he’s a wing buyer that bullies the market to make his position in the money."

Currently, winning to Trump is getting re-elected.  However, the country has a number of hurdles-high unemployment, ballooning income inequality and an erosion in confidence-to name a few.  As eluded to in past notes, we believe there will inevitably be a showdown with China and Navarro’s comments last night should not be dismissed.

Ultimately, we will assess the probability that Trump walks on the China trade deal by September and as we will see, it will have increasing importance on markets.


Chinese Protests vs Projections

In order to adequately assess this probability, we need to understand each country’s position.  Looking at China, PMI’s were decimated following COVID-19 and they are just starting to get back on track.  However, as deduced before, some 50mm migrant workers have moved back to the countryside due to a lack of jobs.  This, coupled with food inflation that is still up 30% YoY, are the ingredients for discontent.  In fact, our Chinese protest model has been projecting sky-high protests:

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