Yeah, asking nicely is a non starter and doing nothing is what every President did. They do talk a big game in campaigns every four years.
China strategically thinks in 100 year time horizon and US lurches from day by day as trade deficits grew to $1.1T and then fights stupid wars.
EVERY country will now be forced to come to the negotiating table one by one.
Which, again, doesn’t mean that every other possible response other than asking nicely is smart.
Just because we tried policy X for a while and it didn’t work does not mean that any given alternative to policy X will work. Or won’t make it worse. If you are advocating that policy Y is a good policy, merely pointing out that policy X didn’t work does not in any way support the claim that policy Y will work instead.
There are literally an uncountable number of alternative trade policies that aren’t “asking China nicely.” Some would be beneficial alternatives; some will be terrible alternatives. Just because they’re different from “asking China nicely” doesn’t mean they’ll be good. Plenty of things that aren’t “asking China nicely” would be catastrophic to implement - perhaps including the present trade policy.
Increasing tariffs on every product from every country on earth isn’t necessarily a smart policy just because prior efforts to reduce Chinese trade deficits were unsuccessful.
I’d agree that’s an accurate description of the Trump decision making process.
Why is that an arbitrage trade?
This looks like sell one asset and buy another asset.
Which specific corporate bond issue can be arbitraged as you describe it against a US Treasury and how would the economics and size of this issue be comparable to US Treasuries?
Agreed.
I’m still in the camp that lower demand results in lower prices, to some degree.
Roughly equal is not well defined.
Except when tariffs result in constrained supply. I bet Ford’s price increases will exceed the increased cost of imported parts, because taking people’s money is how Ford rolls.
Steve
Piece just on the NBC evening “news”. Tom Costello goes to a car salesman (of course) and says “is now a good time to buy a car?” The entire thrust of the “report” was, “hurry, hurry, buy a car now, even if you don’t need one, because shortage, Shortage, SHORTAGE!!!”
Carry on with the lemming stampede.
Steve…long Ford, saw this coming
We are discussing bond prices, financial markets, not goods.
Sorry, sort of forget what the thread is about, when it gets this long.
Steve
Right. Keep doing dumb things again and again. Maybe this time China will be nice?
Fantasy land.
Thinking you can force another country to do what you want. It’s a clown show 
You guys are so afraid of change that you would rather get crushed by deficit and debt and than risk making it worse. Grow a pair !
The guy who was saying he is a coward is now trying to act tough? This is getting better and better. 
Yeah, we should trust they guy who has bankrupted multiple casinos. How could it get worse?
Lots of morons out there.
Just because what you’re currently doing is a dumb thing doesn’t mean that any particular alternative to what you’re currently doing isn’t also a dumb thing. Or even a dumber thing.
Simply pointing out that the status quo is a problem doesn’t make any particular change in policy smart or defensible or at all likely to solve the problem. Just because “X” isn’t working doesn’t mean that “Not X” is a good or better idea - you need to assess the merits of any specific “Not X” on their own.
So even if you stipulate that current policy towards China is bad, it is still true that the Administration’s proposed tariff policy is phenomenally thoughtless and bad. Pointing out over and over again how unacceptable the status quo is doesn’t make the tariff policy they came up with any better. Continuing the old policy might be bad strategy, but they’ve managed to come up with a worse one - start a trade conflict with every country on earth on every product, so that instead of trade policy working to isolate and constrain China, our trade policy is going to isolate and constrain the U.S..
And yet, we are still here and … at least since January, prosperous. I get why having another country be in control of some important resource, e.g., rare earths, is a problem, a vulnerability, but what, in fact, is bad about one country buying more from some other country than that country buys in the other direction. Seems to me that is the natural and expected thing.
Because the two assets are very similar and would generally be expected to perform similarly. When one of the assets is trading at a “discount”, and the other is trading at a “premium” due to exogenous events, if you expect those events to end someday, you can buy the discounted one and sell the premium one and expect a slightly higher return than you otherwise would see. The very act of doing this tends to increase the value of the discounted one, and decrease the value of the premium one, bringing them more into “natural” balance. If enough people do this, it happens relatively quickly, and whoever entered the trade earlier shows a slightly higher return than those who entered the trade later.
We’re not talking about specific issues here. Just a general class of AAA (or otherwise highly rated) corporate bonds with similar duration. And they don’t have to be corporate, could be various other issuers. And remember, most institutions only do this kind of stuff as a temporary trade. As soon as the exogenous event is over, they will tend to slowly go back to their normal allocations. So, if tariffs “go away” and other countries start selling a lot more stuff and thus have excess US cash each month, and that cash ends up [partially] in treasuries again, then the demand for treasuries goes up, and prices go up a little, and yields go down a little, and these institutions can unwind their trade at a slight profit over what was usually expected. They do these kinds of trades all the time. They also do direct trades on the expectation of credit spreads widening or shrinking, there are even derivative instruments for that purpose.
$36Trillion in debt, $2.5Trillion in more borrowing every year to sustain fed spending and $1 Trillion in interest payments is alarming.
The country needs to take the medicine. Ignoring the problem is not a solution. Continuing the status quo is not the solution.
Many will be uncomfortable and there will be antibody reaction. That is OK. Change is hard. Shake things up to bend the curve !
What you describe is not arbitrage: “general class” and “various other issuers”, but I understand there is a very strong chance you will never acknowledge that.
If you can’t provide a single specific example of one issue that is an example of your trade, which you cannot, then your general case lacks credibility.
Yes, it’s eventually unsustainable, notwithstanding the fact that most of those interest payments go to US pension funds, US financial institutions, and US citizens. Only a fraction of that money is on a flight to China (or elsewhere) which comes back to us in the form of bond sales. Weird, right?
Sometimes when you shake things up you break it entirely. That’s the thing, if you want to shake things up you should do it intelligently. This is not that.
I remember when Marissa Meyer was brought in to “shake things up at Yahoo!”. Well it still exists but is a shadow of its former self.
Anybody remember John. Flannery, the CEO of GE who was brought in to shake things up? He lasted a year and was tossed out on his bumpkin.
I’m thinking of the parade of nitwits at Boeing, brought in to shake up the storied plane maker, whose big ideas were to move the headquarters to Chicago (where they didn’t make planes) and later to Washington (where they also didn’t make planes), to open a non-union plant in South Carolina where their assemblages were so rickety that customers refused to accept them, to putting all their profits into stock buybacks even as the place cratered.
Yeah, they really “shook it up.” (Anybody want to talk about Nardelli’s reign at Home Depot? Didn’t think so.)
Boeing is a good example of slow decay and risk averse bureaucratic management. They neither have reduced risk nor have innovation.
SpaceX, a new entrant launched 85% of payload to orbit in 2024 and had to rescue the astronauts and working on a fully reusable rocket.
Remember Blockbuster ? Barnes and Nobles ? They were too afraid to change. What if we change and it breaks things even more ? Maybe the problem will go away ? They could see Netflix and Amazon disrupt them but establishment was reluctant until it was too late.
I understand you guys are scared, but you are caught in a “boiling frog syndrome”. US has to take the medicine and get off the massive overspending and trade deficit drugs. Cognitively impaired Biden was clueless and has done too much harm.