Some random thoughts about the so called trade deal. 1. We still know almost nothing about the so called trade deal. One report had the whole thing at 9 chapters. That's a lot more than a simple "buy more soy beans." Let's hold judgement until we learn more about what's there 1/n
Even with the brief two page statement, there are some interesting things but the details are going to matter. 2. I would still say one had to put the odds of this whole thing blowing up at 50%. I mean there Chinese presser sounded more like they were talking during 2/n
A colonoscopy than a trade deal announcement. They've cheated on pretty much everything so the question really is what is the tolerance for cheating and fall back position rather than expecting success 3. This deal seems like a relatively low risk gambit for Team Trump 3/n
The tariff roll back are pretty minimal and additional phase out though not explicitly coincides clearly with deal performance. If China doesn't perform, very easy to return to December 12 status quo. This makes it easy to get out of but it also makes it easy to get out of 4/n
Because neither side has committed anything other than political capital, very easy for each side to back out and blame the other for political purposes. This doesn't add more confidence in the strength of the deal. Each side seems to be preparing for failure 5/n
Which given the state of affairs is probably reasonable. 5. Maybe the most important aspects are the tech transfer, IP, and dispute settlement aspect of this agreement. We know almost nothing about them so will make no statements about them but depending on what comes 6/n
From those sections, this could really bump up the value or prove worthless to the deal value. 6. The deal commits China to not just more agriculture purchases but more overall imports. This is going to have a lot of second order impacts assuming there is follow through 7/n
With a lot coming down to how China manages it's own broader policies. So too soon to tell. Regardless, it will put a lot of pressure on China. 7. The entire deal value will come down to follow through and execution. However, it is fair to say Trump administration gave away 8/n
Very little to give the deal a chance. So far, what had been reported is that tariffs on $110b cut from 15% to 7.5% with 25% remaining on $240b. That's not a big give away to get a peek at China's cards and you can still easily reimplement. Additionally, what had been 9/n
Reported is that this did not touch issues like Huawei or investment. If you wanted a deal, you were going to have to give something. This is a pretty small give that can easily be taken back. Overall, I think one would have to say a lot will be determined by details and 10/n
Everything comes down to execution but right now as only a phase 1, I'd give it a B but adjust based upon additional details. Could provide good value for minimal cost but we will have to see. Most importantly though, I think you still have to put the risk this whole thing 12/n
Blows up as relatively significant. Definitely upwards of a third would be my initial guess but willing to adjust this estimate as we learn more. Deal never done until the money if in the offshore bank account. Words to live by. Done.
