World Domination

The week ended on April 4, 2025, interesting news items to look at this week are:

1. World Domination: James Bond in the 1962  movie Dr. No said “World domination. The same old dream. Our asylums are full of people who think they're Napoleon. Or God.” (Fig. 1).

I quote from this 63 year old movie because one does need to have a very long view to understand and prepare for what is to come. This week’s “Liberation Day” have drawn the first blood of WWIII. The global economy is in a panic because of a sudden unprovoked attack by the Anglo American Empire on every nation. In an interview of US Treasury Scott Bessent, Bessent explained Trump has consistently promoted his tariff policy and people should not be surprised, but wait a minute, common meaning for a “reciprocal tariff” should mean a tit for tat response. When the average tariff on imports from US was taxed at 1.2% in the EU, then a 1.2% duty on EU exports to US is fair game but at 20% is not reciprocating but war. Bessent also hinted that Trump was just following Hamilton’s tariff plan of fund the nation, protecting American industry and as a negotiation tool. (Fig. 2).

 I am sure most readers of this Blog knows how the US Administration came up with the Liberation Day tariff formula but let’s refresh ourselves with the chart on (Fig. 3.)

using Vietnam as an illustration. As I have said last week, Trump’s methodology is a Shock and Awe Marine Beach Landing Tactic, the essence of Liberation Day is not the tariff rate but a coercion for nations to come individually to US for a bi-lateral negotiation. In the minds of the US Administration  US should prevail in these one on one negotiations. To that extent Vietnam immediately hoped on a plane to Washington, then would likely be followed by Taiwan, Japan and South Korea. What the Trump team had not anticipated was the very strong stand taken by China to immediately counter punch with an equivalent 34% tariff on all US imports and a determination to completely decouple from US. Now if you are a poker player, a follow suit would mean China gave the ball back to US and await her reaction and this puts US in a real catch 22. It is meaningless for US to further increase the tariff rates as a threat (from 54% tariff to say 70 or 80% tariff would not necessarily intimate China). On the other hand, US has made no preparations to completely decouple away from China’s supply chain. The Chinese counter punch caused the US financial markets to enter into a panic mode and the Dow fell a further 2,200 points on top of the 1,700 points on Liberation Day. Should US double down, the US stock market would immediately be tipped into the “Bear Market” territory in a single day movement. The world now awaits US next move. Personally I have been preparing for this day for a little while and allow me to share below some data pixels of the forces shaping this Tariff War.

(i) Ebbs and Flow of US Tariff: Fig. 4 is a chart showing average tariff rates of US Imports between 1821 to 2025.

The effect of “Liberation Day” was to substantially increase US average tariff rate to 22%, the highest since 1918. Remember the precursor of WWII was the tariff war of 1930s followed by the Great Depression. In the Post WWII period, US average tariff has generally came down until 2018 when Trump 1.0 started another bout of trade war. I have segregated  the post war period into two time zones. The first was from 1945 to 1971 (Fig. 4 Green Area). This marked a period of substantial US exports to other countries on post war reconstruction and US promoted a global reduction in trade barriers for her own advantage through GATT (The General Agreement on Tariffs and Trade). The second period was from 1971 to 2018 after US defaulted on the Brettons Wood Agreement and as explained last week, in order to protect the Dollar Hegemony, US flooded the world with USD through trade deficits. Trump’s narrative of US being exploited by other nations through cheating, pilferage and copycat technology was too careless with the truth, well but may be a useful placebo for American citizens when they are being heavily taxed.

(ii) The Deindustrilized State: Fig. 5 is a table showing the top 20 largest companies amongst the S&P 500 Corporations.

Their combined revenue is 35% of the S&P 500 Companies. Notice there are only three manufacturers at the 19^th and 20^th position with Apple at the 4^th. But 60% of Apple’s sales is international, 50% for Proctor  Gamble and 40% for Ford. For these 3 companies, re-shoring manufacturing to US after Liberation Day will be suicidal. No CEO will take responsibility for major Capex to re-shore when the domestic US market is going into recession. The other companies on the list are Retail (highlighted yellow), Healthcare (white and pink), Big Tech (green), Financial (orange), Energy (grey). These companies should have the financial clout to move sourcing but  are not the ones that actually manufactures. Walmart and Amazon sourced their products predominantly overseas and majority from China. For the Healthcare segment, they are mainly distributors of pharmaceuticals and health services only. Unfortunately the drug companies that supply these Healthcare giants sourced 53% of their API (“active pharmaceutical ingredients”) via imports. The question then came, where can the drug companies find the resources to backward integrate and build capital intensive and low yield production bases in US. Big Tech and Financial are not directly involved with tariffs and we will leave them out for the time being. The final grouping is Energy, Exxon international sales is 75% and Chevron is 71%, guess what will they do. There were also other companies that listened to Trump like Nike, Black & Decker and Lululemon and diversified their manufacturing away from China, particularly to Vietnam and India. After great relocation expenses and lower achieved productivity, Liberation Day was nothing but jumping from the oil pan into the fire, all suffered a loss of 25% of their stock value in one month (Fig. 6). 

What will your typical CEO do then? Very likely he will just keep his head down and wait it out with a tightened belt.

In Trump 1.0, a $4 trillion tax incentives given to the S&P Companies but they simply spent in stock buy backs and tariff increases simply passed onto consumers. Trump policies  failed. In Trump 2.0, Trump just picked a fresh bunch of YES men and continue with his failed ideas. (Fig. 7).

(iii)  What will be the likely outcome: US is forced into a stalemate by Russia and China. Like the war with the Houthis, Trump will stay his course for a little while for face reasons and afterwards pull back the USS Carrier Strike Groups. I expect in 3 months time Trump will have a narrative that the Liberation Day is a success (Vietnam, India, Taiwan, South Korea and Japan capitulated) but quietly the patient (the economy and the USD) died during the surgery. The Fed will be forced into QE to infinity with hyperinflation beginning in 2025 and a kinetic WWIII probably in 2029.

2. Financial market performance since Trump won 2024 Presidential Election to April 4 2025  (Fig. 8):

Bitcoin (+21.52%), Russian Ruble (+15.8%), Gold (+10.28%), JPY (+3.01%), Eur(+0.30%), USD Index (-0.39%),  GBP(-1.09%),  Rmb (-2.42%), TSLA(-4.92%), Silver (-9.38%), S&P 500 (-10.58%), Nasdaq(-13.99%),  and Nvidia (-32.95%).

Luke 14:31  Or what king, going to make war against another king, does not sit down first and consider whether he is able with ten thousand to meet him who comes against him with twenty thousand? 32  Or else, while the other is still a great way off, he sends a delegation and asks conditions of peace. 33  So likewise, whoever of you does not forsake all that he has cannot be My disciple. 

 

Apologies

The week ended on March 28, 2025, interesting news items to look at this week are:

1. Apologies: For the past two months, I was busy prepping my old house for sale, a house we built 18 years ago and now proved too big for empty nester. Selling houses in Australia is rather theatrical and involved a process called staging, which means clearing out all our belongings, getting contractors in to do repairs and touch ups, then interior designers to place rented furniture and display items like artworks, paintings and plants, inspectors to check on compliance with latest building codes and agents to do marketing and selling. Marketing is about placements of ads in specialists housing platforms and social media. Creating marketing materials like drone shots, dusk photos, videos, and of course copy writers for the ad campaign. There is a trade off between how much one pays for outside services and DIY and added complications of reliability of contractors and the desirable effect. With all these, there simply weren’t enough time for me to sit down and put ink to paper for my weekly blog. Here is a photo of the final product with prayers that it would be sold. (Photo)

At  hindsight, a brief period away from my desk proved to be a blessing as there were just too many breaking news for anyone to digest and analyze in the past period. The Munich Security Summit and the disintegration of NATO, the kabuki reality Trump/Zelensky show, the rise and fall of the Coalition of the Willing by UK Prime Minister Starmer, the on/off Tariff fiasco on Mexico and Canada, the cease fire in Gaza on a false pretext, the de facto default by Bank of England on spot gold deliveries and not forgetting DeepSeek and Unitree Robotics open source global sharing. Not following news too closely has its benefits as keeping a distance allows one to see more clearly the big picture, the macro view and for what it's worth, here is a summary.

2. Capabilities and Not Intentions: In the most intense competition of global powers in recent history China has finally given up on explaining her position with the United States or even the hope of a meaningful dialogue as China finally accepts the fact that the United States is motivated to destroy rivals based on their “offensive” capabilities buildup and not their intentions. (Fig. 1).

It took 25 years for many political leaders to wake up to the fact that the doctrine of “Full Spectrum Dominance” of the Anglo American Empire first promulgated in 2001 was not a design to get more funding for the US Military Industrial Complex but a genuine desire of their political elites to be the perpetual apex predator.  I suppose it is expedient to overlook the depravity of human nature and politically correct and beneficial to enjoy the open markets of the United States, to get rich on the outward flow of dollars as US hollowed out her industrial capacity in pursuit of the “Dollar Hegemony”. After all, America was indeed once a great nation and a “benevolent ruler”.  Sadly, few observers book marked what Alexis de Tocqueville said in 1832. (Fig. 2).

This brings us to the subject of the likelihood of success of Trump’s MAGA.

3. MAGA: MAGA received wide acceptance of the American voters because a lot of people in the Red and Purple Electorate believed that they can have the promised prosperity at the expense of other people. (Fig. 3).

That fallacy alone would mean MAGA would fail as militarily, economically and particularly monetarily the current health of the United States is a far cry from the Reagan era. As I explained in a previous Blog, US survived a default of the Bretton Woods Agreement in 1971 by (i) jacking up shot term interest rate to 20%, (Fig. 4)

(ii) by flooding the world with US$ through trade deficits in a purposefully hollowing out of her industries (Fig. 5)

and (iii) an agreement with the Saudis to exclusively sell petroleum in US$. More will be said on the agreement with the Saudis in later paragraphs.  As Trump stepped into the Oval Office, the United States is high on debt, high on inflation and high of stock market valuations. Tools in the old tool box were simply not available to Trump. As US migrate by design to a financialized economy away from a real productive economy the concept of competitive advantage gained through land (resources, strategic locations, connectivity and infrastructure), labor (cost and skill) and capital (intellectual and money by which I mean real money or ample barterable products and not a promissory note of fiat currencies) has long been abandoned by a majority of American businesses. Instead, the two customary tools for the US financialized economy are TINA (There Is No Alternative) and FOMO (Fear Of Missing Out), we will cover more on this two features later. Let us now take a close look at how Trump sets out to MAGA.

4. The Art of the Deal: Trump is obsessed with tariff as a bargaining tool because the imposition of tariff is totally within the powers of PONTUS, no cabinet endorsement required, no Congressional approval necessary, not even a possible challenge by the Courts. When 60% of Americans never ventured outside its own national borders, Americans are easily fooled by a misguided notion that the exporting countries are the ones who will be penalized by tariffs. People describe Trump as a “Poster Bully”, someone who will post anything on the social media and see what reactions may result and then amend his tacit accordingly.  To the weaker targets, Trump will apply maximum pressure until something breaks. This is typical of a US Marine war plan (the US Marines is Trump’s most loyal supporters in the military) which requires a shock and awe attack in the shortest time frame to siege a beach head because a long drawn out fight is fatal on account of logistics and lack of defensive infrastructure. To America’s peer rival like Russia and China who are land powers and play the long game, Trump is extremely cautious and desires dialogues and guard rails for fear of over reaction and retaliation. In my books, no borrower can ever succumb a lender. (Fig. 6).

In today’s Western economy, currency is debt and for debt to be sustainable, credit ( the etymology of which is “credo” meaning a statement of faith) is foundational. When a nation sell short her integrity, a nation’s credit is destroyed and so would the nation’s currency. This bring us back to the drivers of a financialized US economy which is TINA. Since oil is no longer exclusively to be sold in US$, semi-conductors seemed to be an ideal substitut. Foolishly by sanctioning US once largest creditor - China from access to US semi-conductor technology, the demand for US$ would correspondingly disappear and alternate supply chain develops. Then came AI which for a couple of years may aspire to be the next TINA. Everything looks rosy for the US tech sector until December 2024 when DeepSeek is launched and now with both DeepSeek and Unitree Robotics on open source, everyone is bidding sayonara to American TINA. In one of my earlier posts, I intimated that ChatGPT is more a financial phenomenon than an earth chattering technological breakthrough. The 7 fold increase in share price of Nvidia in two years is a design to suck in cash globally through momentum trade on the basis of FOMO. Since DeepSeek, we have witnessed how a $5.6 million Chinese investment in DeepSeek has deflated a $ trillion + valuation climb down on the American bourse with its consequential negative wealth effect. This is asymmetrical warfare in its finest.

5. The Petrol Dollar Deal: To the world at large, the Petrol Dollar was fomented in the mid 1970s after US defaulted on the Bretton Woods Agreement. The official narrative was the Saudis agreed to sell petroleum exclusively in US$ in exchange for US protection and a perpetuation of the Saudi family monarch. The real deal is a little bit more complicated. Market sources at the time understood US had actually agreed to pay for imports from Saudi as to 50% in gold and 50% in US$ with an undertaking that the price of gold would be maintained at slight premium of the cost of gold mining and production  around US$ 400 per ounce at the time. For US Treasury to hide this fact, gold leasing and the Gold Carry Trade was developed which involved the engagement of Bullion Banks to lease gold from Central Banks, cash out in the open market and lend the cash proceeds to gold miners at a preferential interest rate. In return gold miners would tender back future production to Bullion Banks at a contract price who would return the gold to Central Banks. This very act had ensured the drop of gold price from a panic speculative high of $800+ per ounce to around $400/Ounce for 15 years until 1995. (Fig. 7 Green Zone).

By 1995 US had successful created and then pricked the Japanese bubble economy and found a new sucker donkey in a Yen Carry Trade. A leak for the secret Saudi deal was made in the elite banking circles and suddenly FX dealers found a no brainer winning trade of leasing gold from Central Banks at 25 basis points, short sell and reinvest the proceeds in US Treasuries at 600 basis points plus a possibility of buying gold back at depressed prices. (Fig. 7 Red Zone). Between 1995 and 1999 Central Banks saw the value of their core Reserve Asset plummeted from $400/oz to under $300/oz and consequently in 1999 at the International Monetary Fund Annual Meeting, Central Banks, particularly European Central Banks agreed not to make further gold leases and to limit gold sales to no more than 2000 tons over 5 years and 400 tons on an annual basis. This is known as the Washington Agreement. The US Administration did not expect this curve ball and did not have sufficient time to call back all the leased gold in the 4 years of happy speculative gold selling, Gordon Brown, as Chancellor of the Exchequer, was prompted to initiate a sale of 60% of UK's gold reserves between 1999 and March 2002 at an average price of $275/oz and likewise for Canada. Canada emptied all her gold reserves in the early 2000s.  (Fig. 7 Gray Zone). Now you have a more complete picture of where Fort Knox’s gold has gone? (Fig. 8)

6. Not One in a Million: The following quote is from the famous economists John Maynard Kaynes: (Fig. 9).

Do you think the powers that be will pay you an interest higher than the rate they debauch the currency. As a mathematical fact, even the so called risk free asset of a US 10 Year Treasury Note will loose virtually all her purchasing powers in 18 years at a rate of decay of an average of 4% per annum. My friends be warned and be prepared. We are into QE to infinity and hyperinflation in 2025.

7. Financial market performance since Trump won 2024 Presidential Election to March 28 2025  (Fig. 10):

Gold (+15.73%), Russian Ruble (+14.49%), Bitcoin (+10.27%), Silver (+9.24%), JPY (+3.11%), Eur(+0.87%), GBP(+0.42%), USD Index (-0.99%), Rmb (-1.16%), S&P 500 (-5.74%), Nasdaq(-7.22%), TSLA(-8.70%) and Nvidia(-25.01%).

1Timothy 6:10  For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.