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Canadian Official On NAFTA Renegotiation: “Mexico Is In A Terrible, Terrible Position. We Are Not”

As reported yesterday, Mexico is not at all looking forward to starting the process of renegotiating NAFTA with Donald Trump, explicitly warning the US that “there are very clear red lines that must be drawn from the start.” What these lines are will be explained by Economy Minister Ildefonso Guajardo and Foreign Affairs Secretary Luis Videgaray who are both meeting with US officials in Washington on Wednesday and Thursday, setting the stage with next week’s visit from Mexico President Enrique Pena Nieto.

Only, Enrique Pena Nieto may not even come, because according to an AP report late on Wednesday, the Mexican President is rethinking his scheduled meeting with President Trump next week. Peña Nieto may scrap the planned Jan. 31 huddle because of Trump’s executive order authorizing the construction of a wall along the U.S.-Mexico border, AP added. The AP confirmed with a Mexican official in Mexico City that Peña Nieto is “considering” cancelling the rendezvous.

And while subsequently Bloomberg reported that Nieto will visit the US as planned after all, the fury in Mexico is palpable and the Mexico News Daily reported that Trump’s border wall order sparked fierce backlash among Mexican lawmakers. The National Action Party’s Margareta Zavala called Trump’s order “an offense to Mexico” ahead of Peña Nieto’s trip. Jorge Castaneda, who served as secretary under former Mexican President Vicente Fox, also blasted the measure Wednesday. “This is an insult to those Mexican officials, to the president of Mexico and to all Mexicans,” he said, referencing two Mexican officials who met Trump administration staff on Wednesday.

“It’s a way of making them negotiate under threat, under insults, and it should lead Peña Nieto to cancel his trip next week,” Castaneda added during a television interview. “Peña [Nieto] is a weak president in a weak country at a weak moment, but he has to find a way to get some official backbone.”

* * *

But while Mexico’s anger at the US is understandable, maybe the US’ southern neighbor should be just as angry at the country that border the US to the north: the third member of NAFTA, Canada.

Canada will focus on preserving its U.S. trade ties during talks to renegotiate NAFTA and may not be able to help Mexico avoid being targeted by the Trump administration, Canadian government sources say.

“We love our Mexican friends. But our national interests come first and the friendship comes second,” a source said on the sidelines of a cabinet retreat in Calgary, Alberta. “The two are not mutually exclusive,” the source added.

In other words, when it comes to preserving NAFTA, it’s important, but what is more important is being on good enough terms with Trump to be able to cobble together a bilateral treaty should NAFTA fail.

As Reuters reports, the comments are some of the starkest yet by Canadian officials, “who are increasingly convinced Mexico will suffer the most damage from changes to the North American Free Trade Agreement.”

* * *

Of course, the reason why both Mexico and Canada are on edge, and why their superficial friendship is about to collapse, is because on Sunday Trump said he planned talks soon to begin renegotiating NAFTA, under which Canada and Mexico send most of their exports to the United States. The Canadian sources stress Ottawa has not taken any final decision on how to approach the NAFTA talks, since Trump’s opening stance is largely unknown.

For now the government’s official stance is to dismiss the idea that Canada will formally abandon Mexico. Foreign Minister Chrystia Freeland said on Tuesday that Canada supported NAFTA as a trilateral agreement and noted that Trudeau had talked to Mexican President Enrique Pena Nieto over the weekend.

That said, Reuters’ government sources note Mexico and Canada would appear to have little in common. Trump is unhappy about the large U.S. deficit with Mexico and has promised to punish firms with manufacturing bases there. “Our negotiating positions are totally different. Mexico is being hung out of an skyscraper window by its feet,” said a second government source.“Mexico is in a terrible, terrible position. We are not,” said another Canadian person involved on the trade file.

Bilateral trade is critical for Canada, which sends 75 percent of its exports to the United States. Statistics Canada data for 2015 show two-way trade in goods with the United States totaled C$760 billion ($580 billion) compared to just C$26 billion with Mexico. Canada has a “very special status” and is unlikely to be hit hard by changes to NAFTA, the head of a business advisory council to Trump said on Monday.

And the punchline: Derek Burney, a former Canadian ambassador to Washington, told CTV News on Monday that Canada should distance itself from Mexico on NAFTA. “We have security agreements, both continental and multi-lateral — Mexico does not. Mexico has a huge border problem with the United States in terms of immigration and drugs — Canada does not,” he said.

Officials familiar with diplomatic contacts between Mexico and Canada say there has been no talk of creating a joint front against the United States over NAFTA on the grounds that such a move would raise tensions and be counterproductive.

And that – by dividing and conquering his counterparts who are too afraid to unite against him – is how Trump’s “negotiating victory” is assured before the negotiations have even begun.

 

 

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Kyle Bass Hints What The “Greatest Trade He Has Ever Encountered” Is

Heyman Capital’s Kyle Bass, who as we reported two weeks ago returned an impressive 25% in 2016, spoke to Bloomberg TV’s Erik Schatzker and likened President Donald Trump’s trade and tax policies to gasoline which will accelerate an economic “restructuring” – a polite word for crash – in China.

Discussing a topic he has been particularly focused on since late 2015, Bass said China has “recklessly built a system that’s going to need to restructure and that just so happens to be metastasizing right when Trump becomes elected. This is a fire that’s been smoldering and it’s now starting to burn, and Trump is just more gasoline.” As he put it later “in lifecycles, what Trump is going to do, he is going to speed everything up.” That statement is absolutely spot on, on many different levels as we will soon find out.

Bass also said that imposing tariffs on Chinese imports could have “profound consequences” for the nation’s economy, where credit over the last 18 months has grown by $6.5 trillion while deposits have grown by half of that, or just $3 trillion, “so credit is growing exponentially, China has to fund enormous moves in credit growth just to keep in roughly the same place. We call it running to stand still.

He mocked “the idea that China is now the driving economic power in the world” calling it “illusory or somewhat of a fallacy” and as we reported in early January, confirmed that “it’s safe to say that the Asian theater is where we’ve been focused.”

Aside from China, Bass echoed recent favorable remarks by both Ray Dalio and Stanley Druckenmiller about the impact Trump would have on the US economy, which he said would now focus on labor over capital, and the resulting increase in capital investment could to a jump in productivity, all of which is happening near full employment and when combined with tax repatriation, will be “extremely stimulative” but also be inflationary. The impact will be “positive for the United States and slightly negative for the rest of the world,” he said. “But it’s not the globalist nightmare, in my opinion.”

As he says, if you need to boil it down into a soundbite: “short rates, dollar strong”, but the question is how do you get to pay for cutting the corporate tax rate, to which his answer is that a border tax – or “taxing the trade deficit” – is the “only way to pay.” However, if various retail-affiliated lobies such as Nike and WalMart offer enough resistance, Trump may simply enforce tariffs.

When asked how he played the election, Bass said that he waited until the results started coming in and found the market’s initial reaction to a Trump victory as irrational, and that just like Carl Icahn, he took on very “pro-growth” positions in currencies and rates in “huge amounts” later that night, in what ended up being an “easy trade.”

* * *

But what we found most interesting is a section discussing inflation in Germany and German Bunds, in which he may have dropped a hint to help us identify a trade he previously dubbed the “greatest risk-reward profile ever encountered.” Recall in his year end letter, Bass said the following:

One opportunity in particular has the greatest risk-reward profile we have ever encountered in our decade of being a fiduciary. As investors of ours, you are positioned to take advantage of one of the world’s greatest macro imbalances.

The trade Bass may be refering to is the same “short of a lifetime” first brought up by none other than Bill Gross in April of 2015, namely shorting German bunds, and which promptly crashed just days after the Gross prediction almost two years ago.

Why do we think so? Because when Shatzker asked Bass if “there are any natural Trump trades right now” Bass’ response was quick and to the point:

“Real rates in Germany are at the lowest level ever right now. Inflation in Germany is spiking. It’s not even moving in a linear fashion. You have even seen members of the ECB and the Bundesbank speak today about the fact that I think we are going to see inflation running much hotter than any of the central banks thought it would. Therefore I think the move in bonds is just beginning.”

It sounds that Bass now in agreement not only with Gross, but also Jeff Gundlach, who in his recent public webcasts has continued to hammer the thesis that shorting German Bunds has huge profit potential, and if indeed Bass sees the Short Bund trade as the greatest opportunity of his career, the Bund crash and VaR shock observed in May of 2015 may be imminent once again.

* * *

The rest of the Bloomberg interview, predictably, focuses almost entirely on China, where the crash thesis is well-known (if not the timing), and Bass expounds on the various ways one can play the upcoming crash, although – like any smart hedge fund manager – he won’t explicitly state for the record that he is short the renminbi or other Asian currencies. Toward the end, Bass takes an interesting detour in which he praises the Russian economic response to the recession of 2015 in what appears to be a decidedly bullish outlook on Russian assets, and when Shatzker proposes summarizing the Bass interview by saying “short China, long Russia”, Bass responds “that’s a good place to start”

Watch the full interview below:


The post Kyle Bass Hints What The “Greatest Trade He Has Ever Encountered” Is appeared first on crude-oil.top.


No Image

Kyle Bass Hints What The “Greatest Trade He Has Ever Encountered” Is

Heyman Capital’s Kyle Bass, who as we reported two weeks ago returned an impressive 25% in 2016, spoke to Bloomberg TV’s Erik Schatzker and likened President Donald Trump’s trade and tax policies to gasoline which will accelerate an economic “restructuring” – a polite word for crash – in China.

Discussing a topic he has been particularly focused on since late 2015, Bass said China has “recklessly built a system that’s going to need to restructure and that just so happens to be metastasizing right when Trump becomes elected. This is a fire that’s been smoldering and it’s now starting to burn, and Trump is just more gasoline.” As he put it later “in lifecycles, what Trump is going to do, he is going to speed everything up.” That statement is absolutely spot on, on many different levels as we will soon find out.

Bass also said that imposing tariffs on Chinese imports could have “profound consequences” for the nation’s economy, where credit over the last 18 months has grown by $6.5 trillion while deposits have grown by half of that, or just $3 trillion, “so credit is growing exponentially, China has to fund enormous moves in credit growth just to keep in roughly the same place. We call it running to stand still.

He mocked “the idea that China is now the driving economic power in the world” calling it “illusory or somewhat of a fallacy” and as we reported in early January, confirmed that “it’s safe to say that the Asian theater is where we’ve been focused.”

Aside from China, Bass echoed recent favorable remarks by both Ray Dalio and Stanley Druckenmiller about the impact Trump would have on the US economy, which he said would now focus on labor over capital, and the resulting increase in capital investment could to a jump in productivity, all of which is happening near full employment and when combined with tax repatriation, will be “extremely stimulative” but also be inflationary. The impact will be “positive for the United States and slightly negative for the rest of the world,” he said. “But it’s not the globalist nightmare, in my opinion.”

As he says, if you need to boil it down into a soundbite: “short rates, dollar strong”, but the question is how do you get to pay for cutting the corporate tax rate, to which his answer is that a border tax – or “taxing the trade deficit” – is the “only way to pay.” However, if various retail-affiliated lobies such as Nike and WalMart offer enough resistance, Trump may simply enforce tariffs.

When asked how he played the election, Bass said that he waited until the results started coming in and found the market’s initial reaction to a Trump victory as irrational, and that just like Carl Icahn, he took on very “pro-growth” positions in currencies and rates in “huge amounts” later that night, in what ended up being an “easy trade.”

* * *

But what we found most interesting is a section discussing inflation in Germany and German Bunds, in which he may have dropped a hint to help us identify a trade he previously dubbed the “greatest risk-reward profile ever encountered.” Recall in his year end letter, Bass said the following:

One opportunity in particular has the greatest risk-reward profile we have ever encountered in our decade of being a fiduciary. As investors of ours, you are positioned to take advantage of one of the world’s greatest macro imbalances.

The trade Bass may be refering to is the same “short of a lifetime” first brought up by none other than Bill Gross in April of 2015, namely shorting German bunds, and which promptly crashed just days after the Gross prediction almost two years ago.

Why do we think so? Because when Shatzker asked Bass if “there are any natural Trump trades right now” Bass’ response was quick and to the point:

“Real rates in Germany are at the lowest level ever right now. Inflation in Germany is spiking. It’s not even moving in a linear fashion. You have even seen members of the ECB and the Bundesbank speak today about the fact that I think we are going to see inflation running much hotter than any of the central banks thought it would. Therefore I think the move in bonds is just beginning.”

It sounds that Bass now in agreement not only with Gross, but also Jeff Gundlach, who in his recent public webcasts has continued to hammer the thesis that shorting German Bunds has huge profit potential, and if indeed Bass sees the Short Bund trade as the greatest opportunity of his career, the Bund crash and VaR shock observed in May of 2015 may be imminent once again.

* * *

The rest of the Bloomberg interview, predictably, focuses almost entirely on China, where the crash thesis is well-known (if not the timing), and Bass expounds on the various ways one can play the upcoming crash, although – like any smart hedge fund manager – he won’t explicitly state for the record that he is short the renminbi or other Asian currencies. Toward the end, Bass takes an interesting detour in which he praises the Russian economic response to the recession of 2015 in what appears to be a decidedly bullish outlook on Russian assets, and when Shatzker proposes summarizing the Bass interview by saying “short China, long Russia”, Bass responds “that’s a good place to start”

Watch the full interview below:


The post Kyle Bass Hints What The “Greatest Trade He Has Ever Encountered” Is appeared first on crude-oil.top.