Geopolitical Developments: Biden and Chinese Communist Party Working Independently to Help The American Worker

The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is bearish. Yesterday's cross-asset action brought several positive factors for US stocks. The US yield curve is bull flattening and even better, inflation expectations are stabilizing based on measures of Treasuries and TIPS. But there were also several negative factors across global asset classes. Copper and Oil charts are pointing to declining global GDP expectations. The action in currencies signifies $US strength. Expect the S&P 500 to be range-bound over the next few days.

While the persistence of COVID via the delta variant and the situation in Afghanistan dominate the national and geopolitical debate, there are two other developments that are timely and consequential that I’ll focus on in this blog (my forecast on COVID and Afghanistan can be found in the prior blogs from this week):

1) Reuters notes: “China plans to set up a state pension company with registered capital of 11.15 billion yuan ($1.72 billion), a filing showed on Thursday, the latest step by the world’s most populous nation to boost funds for its citizens’ retirement…China is wooing booth public and private sector involvement as it tweaks its $1.2-trillion pension system for a rapidly ageing population faced with the prospect of underfunding…Seventeen bank-affiliated wealth management units, insurers and state institutions will take stakes in the company, whose largest shareholders include the wealth management units of China’s big five banks, each with a stake of 8.97%, the filing by the Insurance Association of China showed…The new company will manage commercial pension funds, short-term and long-term health insurance, and entrust yuan or foreign currency-denominated assets to other asset managers for retirement purposes, the filing showed.”

This is consequential because it gets China moving toward a consumption-based society, rather than an export-based society. That means more openness to American exports of products and services, which means more opportunities for American firms and that trickles down to the benefit of American workers. And since American workers lack unity in regards education and its provision, and in matters of culture and standards of behavior, it’s only economic opportunity that unites them. A more open China is what the American worker wants and needs, whether they formulate it in those terms or not. Should China succeed, the trade deficit will slowly decline and that redounds to higher valuations in the US equity market.

2) Politico notes: “American companies were glad to see Biden review Trump’s trade policies toward China, but eight months later, they have seen little change on tariffs or other issues bedeviling their business in the world’s second-largest economy.”

Strategically this is a smart move by Biden since it does the same thing as the pension issue above: force the CCP to try to move China to a consumption-based economy from an export-based economy. Politically of course, Biden is triangulating the Republicans on China, which gives him a chance to implement his broader agenda.

Yesterday I added a position in American Express (AXP) and added more to my position in MKS Instruments (MKSI). My other current market positions are in Facebook (FB), Korn-Ferry (KFY), Starbucks (SBUX), Titan Machinery (TITN), and nearly hedged position that is net long in the SPX (UPRO and SPXU).