An old friend, a Wall St veteran and a dyed-in-the-wool Republican, who I met when working in New York in 1974, wrote an interesting letter recently. The following is an excerpt.

“The tug of war continues! While the US has historically had low tariffs, I believe the suggestion that imposing tariffs will reverse the US trade imbalance is shallow thinking. To give perspective, much of the foreign buying of US Treasury debt comes from the imbalance of trade. The Chinese, Japanese and Europeans take their excess trade flows and buy US debt. That helps keep interest rates low and has greased profits. Tariffs will raise the cost of goods and push inflation to levels not seen in the US for some time. That, in turn, will cut demand and slow the economy. Probably not what the White House wants!

“The bullying tactics the Trump administration has been using may well have worked for a real estate developer, but, when it comes to countries like China and Russia, it may not be successful. Neither of those countries are short-term oriented or guided by the election cycle.

“For those of us who are investors, the scenario which has recently unfolded offers a buying opportunity. The Chinese economy is growing at 6% + versus that of the US at +/-3%. Imposing punitive tariffs will not help either country, rather it will hurt both. And there is little to be gained from appearing to be on the same moral ground with the Soviets.

“During July, I began to read Crisis Point, a book co-authored by senators Trent Lott and Tom Daschle. This is a good read if one is interested in how the US political system has gotten to where it is now and perhaps how it can straighten itself out. These two retired senators were both leaders of their parties from the 1990’s until early in the 21st century. The art of compromise has been lost and was, the authors claim, the basis on which the US government system was built. For the US to continue to lead both financially and morally, we will need leadership to set realistic common priorities which allow the country to move ahead in a more unified manner.”

Interesting coal face comments indeed.

US July inflation points to September rate hike

The gradual rebound in inflation continued in July and increases the chances of the Federal Reserve (the Fed) lifting rates at the 25-26 September meeting. July’s headline consumer price index (CPI) increased by 0.2% month-on-month (m/m) from June, up from 0.1% m/m May to June. Year-on-year (y/y) was 2.9%, the same as June and the highest annual rate in over six years. The core CPI, which strips out volatile food and energy, was also up 0.2% m/m, lifting the y/y rate to 2.4%, the fastest annual increase since September 2008.