US is a divided country holding two conflicting points of view which are both very valid given existing set of evidences. This is the inherent drawback of democratic systems when faced with foreign threats. The dysfunction of the Roman military during periods of the Punic Wars is a fine example.
It is noteworthy to observe how populism and militarism tends to rise in times of extended economic hardships and during periods immediately prior to major outbreak of wars. Trump is the modern day equivalent of Franklin Roosevelt and Winston Churchill who were both considered populists during their times.
A democratic nation divided
The technology arms race
The economic warfare
The escalating military tension
Other related readings
Chain of events and decision making
The decision making processes from June 2019 after the federal reserve signal likelihood of cutting interest rate leading up to the 2019 August downward mean reversion of the SnP.
19th June 2019, Federal Reserve signals for first time likely decrease of interest rates
Federal Chairman expresses concerns about potential cross winds caused by US trade policies and its impact on their dual mandate.
10th July 2019, news paper reports SnP reaches all time high
SnP on the cusp of crossing 3000 threshold for the first time to an all time high. Market is euphoric. Trade issue between US/China yet resolved but discussions are underway.
Short positions SQQQ and SRTY were utilized as hedges against downward macro environment reversion risk when the SnP extended beyond 3000 to reach an all time high
1st August 2019, US announcement of 10% tariffs on US300 billion imports from China starting September 2019
on 1st August, 24 hours after actual interest rates cut, Trump signaled 10% tariffs on USD300 billion Chinese import. SnP dropped.
Exited SQQQ and SRTY for 10% capital gain after reaching 30SMA and 50SMA range. Net combined loss to portfolio was 0.5%. Left remaining long positions open.
4th August 2019, Chinese response
On 4th Aug 2019, China’s exchange rate dropped for the first time below 7RMB/1USD.
5th Aug 2019 trading day
On 5th Aug 2019, China announced they will halt all imports of agricultural goods from US.
Portfolio continued declining an additional 2% on the trading day of 5th August 2019.
Closed all long positions with the exception of REITs
- Value shares
- Growth shares
6th Aug 2019 trading day
On the evening of 6th Aug 2019, China announced decision to control fluctuation of RMB exchange rates to USD
Bought into TQQQ and URTY at below 30SMA and 50SMA
7th Aug 2019 trading day
TQQQ and URTY automatically exited at the mid point between the two following highs and lows:
- highest point before Trump’s tariff announcement came into effect
- lowest point after China’s halt on US agricultural imports and RMB/USD breaking 7 came into effect
Man as an automaton
The average man eats, sleeps, shits and reproduce.
When presented with environment stimulus that signals more of the above, his brain emits dopamine which elicits are warm fuzzy sensation in his body which he interprets as pleasant.
When presented with environment stimulus that signals less of the above, his brain emits adrenaline which elicits muscular tension and heat in various parts of his body which he interprets as unpleasant.
Physics as the upper bound constrain for economic activities
Economic activity is what man as a collective organism engages in as it goes about fulfilling its above stated needs.
A quantum leap in economic activity is only possible when there is significant break through in the field of physics.
A large increase in numeric valuation of such economic activities without corresponding increase in actual physical throughput volume will result in either an inflation or a subsequent correction.
Characterization of economic activities
Aerobic economic activity is when the environment remains at equilibrium during energy extraction for the above stated needs.
Anaerobic economic activity is when the environment equilibrium is disturbed during energy extraction for the above stated needs.
Framing as a high level principle
He who controls the frame determines what goes within it.
The jug shapes the water.
The player controlling the outer edges of the Othello board generally wins the game
The country which controls the currency for all international commerce control the direction and level of cross border commercial activities.
US controls the global USD supply which majority of foreign economic activities and debts are denominated in. US controls the future economic outputs creditors will receive in the future.
Major creditors for US debts like China and Russia are moving towards Gold as the denominator.
2018 Oct / Dec SPY decline
During the period of Dec 2019, the SPY index ranged between
- 3rd Oct 2019 – USD 291.72
- 24th Dec 2019 – USD 234.34
The steep decline in share price can be attributed to the ongoing trade war wage by the Trump administration and the expected Federal Reserve rate hike. The decline attributions are as follows:
- Trump administration
- USD 291.72 – USD265.37
- 3rd Oct 2019 – 13th Dec 2019
- decline of 9.03% off of USD291.72
- Federal reserve rate hike
- USD265.37 – USD234.34
- 13th Dec 2019 – 24th Dec 2019
- decline of 10.63% off of USD291.72
2019 May / June SPY decline
During the period of May and June 2019, the SPY index ranged between
- 3rd May 2019 – USD 294.03
- 3rd June 2019 – USD 274.57
The steep decline in share price can be attributed to the two front trade war wage by the Trump administration which caused a 6.61% price decline
Of the recovery that occurred after 3rd June 2019, the following parties could be attributed
- Federal reserve
- USD274.57 – USD 287.65
- June 3 2019 – June 7 2019
- 4.76% recovery off of USD274.57
- Trump administration
- USD 287.65 – USD 292.32
- June 10th 2019 – June 18th 2019
- 1.70% recovery off of USD274.57
While both the Government administration and the Federal reserve have observed impact on the SnP index, it is observed the Federal reserve has a slightly higher level of impact.
- Oct/Dec 2019: 10.63% versus 9.0%
- May/June 2019: 4.76% versus 1.70%