#it means i would have to skip another week (probably) before i posted xi

[dangerous-drabbles]

ok, i have a dilemma.

so, as of right now, i’ve written up to the point where i expected to be, meaning i have part x ready to post.

however, i’ve realized with how busy i’m going to be this next week or so, i won’t have time to get part xi. polished and posted the following week.

if i post part x (as i had planned) this week, it means xi (probably) won’t go up until the week of the 20th-21st.

however, i could extend my break a third week and post part x next week; after which we’ll (hopefully) go into arc II (section i) with consistent weekly updates.

(i should note that part x is a transitionary chapter, as it acts as a “preface” for arc II.)

so!

[garkomedia1]

3 scenarios for Trump-Xi meeting

Editor’s Note: This edition of Free Morning Money is published weekdays at 8 a.m. POLITICO Pro Financial Services subscribers hold exclusive early access to the newsletter each morning at 5:15 a.m. To learn more about POLITICO Pro’s comprehensive policy intelligence coverage, policy tools and services, click here.

3 POSSIBLE TRUMP-XI OUTCOMES — T-minus one day until President Trump leaves for the G-20 summit in Buenos Aires for a critical sit-down with Chinese President Xi Jinping. MM has spent the last few days talking to administration officials, market participants and trade experts about both the stakes and the potential outcomes of the summit and repeatedly heard three potential scenarios which we will lay out here with odds for each.

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SCENARIO 1: THE BIG DEAL — The odds of this are the lowest at around 5 percent. Under this scenario, Xi presents Trump with significant “deliverables” on key topics including joint venture rules, intellectual property and the trade deficit. In response, Trump agrees to hold off on increasing the current 10 percent tariff rate to 25 percent on Jan. 1 and halts the process of adding another $267 billion to the list of Chinese goods subject to U.S. tariffs.

People inside and outside the White House see this as highly unlikely given the lack of significant prep work done before the meetings and Xi’s desire to avoid losing face with quick and dramatic concessions to Trump. If it were to happen, global markets would likely celebrate as soon as they re-open on Monday and Trump would take a massive victory lap.

SCENARIO 2: THE SMALL STEP FORWARD — This one is mostly likely (65 percent) and would include positive interactions between Trump and Xi and perhaps a small statement in which both sides agree to further talks and the Chinese agree to some steps including buying more American goods including natural gas. Under this scenario, Trump would send some positive tweets about his relationship with Xi while cautioning that all tariff options remain on the table.

There are many variants to this scenario based on what the Chinese offer. If the offers are better than expected, the January tariff increase could be put on hold. This outcome, depending on the particulars, would also likely goose global stock princes.

SCENARIO 3: THE DISASTER — Non-hardline White House advisers worry about this one a lot and it clocks in at 30 percent. In this scenario, Trump and Xi don’t get along at all, the Chinese offer nothing and Trump leaves angry and pledging to go through with the 25 percent and move as swiftly as possible to add the remaining $267 billion, hitting everything China exports to the U.S. and inviting further non-tariff retaliation from the Chinese.

This scenario ends with mean tweets from Trump and gloating from Peter Navarro. It also ends with sharp declines across global stock and commodities markets and increased recession risk in the United States. White House advisers worry that Trump’s mood and external events (Mueller news etc.) could turn the Xi meeting sour though they don’t see a disaster as very likely given how much the president cares about market reaction.

KUDLOW SETS MODEST EXPECTATIONS — In remarks to reporters on Tuesday, NEC Director Larry Kudlow spoke of newly energized talks between the U.S. and China “at all levels” headed into the Xi meetings but also tamped down hopes for a major deal out of the G20 meeting. “This is an opportunity, with the two presidents, to break through what have been disappointing discussions,” Kudlow said. “This is a big deal, this meeting. And the stakes are very high.” POLITICO’s Andrew Restuccia and Doug Palmer have more on Kudlow’s comments here.

From their piece: “The logistics of the Trump-Xi meeting, which is scheduled for Saturday, are still coming together, according to White House aides. The guest list has not been finalized, and a senior administration official said it’s unclear if the meeting will feature a more intimate discussion with Xi, his wife, Trump and the first lady — or a broader meeting with other top-level aides.” …

“In addition, the president will join the leaders of Mexico and Canada on Friday to sign a newly negotiated trade deal between the two countries, Kudlow said, adding that the logistics of the event are still being ironed out.”

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WHAT BOTH SIDES WANT — POLITICO’s Adam Behsudi: “U.S. demands center on Beijing’s policies that force U.S. firms to hand over technology to do business in China. The Trump administration released an updated report last week that found Beijing has done little to address the initial complaints that have led to tariffs on more than $250 billion worth of Chinese goods. … At best, China could be looking for the upcoming Trump-Xi meeting to result in a detente in the tariff war as a broader deal is worked out.”

TRUMP SWINGS WILDLY AT POWELL … AGAIN — In an interview with WP’s Philip Rucker and Josh Dawsey Trump leveled perhaps has wildest attacks on Fed Chair Jay Powell to date, blaming him for job and plant cuts at GM despite absolutely no evidence that the central bank’s modest and fully anticipated rate cuts had anything to do with the moves. GM says Trump’s tariffs, by contrast, will cost the company $1 billion this year.

Here’s what he said: “I’m doing deals, and I’m not being accommodated by the Fed. They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.” …

“So far, I’m not even a little bit happy with my selection of Jay. Not even a little bit. And I’m not blaming anybody [message to Mnuchin], but I’m just telling you I think that the Fed is way off-base with what they’re doing.” …

“I disagree with the Fed. I’ve been open about that. I think the Fed is a much bigger problem than China. I think that China wants to make a deal very badly. I think we’ll either make a deal or we’ll be taking in billions and billions of dollars a month in tariffs and I’m okay with either one of those two situations.”

It didn’t make the main story but Trump also went after the Fed’s efforts to very slowly reduce a balance sheet that swelled to over $4 trillion during the financial crisis and recession: “We’re not getting any accommodation, and we’re also paying $50 billion, we’re paying down our liquidity, is — you can make the case it’s a positive thing in one way, but another thing it snaps your liquidity.” Transcript.

TRUMP THOUGHT YELLEN WAS TOO SHORT — Also this little gem from Rucker/Dawsey: “Trump considered reappointing Yellen to the post, and she impressed him greatly during an interview, according to people briefed on their encounter. But advisers steered him away from renominating her, telling him that he should have his own person in the job.

“The president also appeared hung up on Yellen’s height. He told aides on the National Economic Council on several occasions that the 5-foot-3-inch economist was not tall enough to lead the central bank, quizzing them on whether they agreed, current and former officials said.

SPEAKING OF POWELL — The Fed Chair speaks at noon on Wednesday at the Economic Club of New York. His topic is “The Federal Reserve’s Framework for Monitoring Financial Stability.” He’s already obliquely responded to Trump and asserted the Fed’s independence and said the central bank is just trying to do its job. He’s not likely to address Trump at all in his prepared remarks but the subject could certainly come up in questioning by Peter Henry and Marty Feldstein. But he probably won’t go much beyond what he’s already said.

HURTING HIS OWN CASE — We’ve said it before but it’s worth repeating that every time Trump attacks Powell and the Fed he makes it LESS likely that the central bank will pause its rate increases next year. The Fed, as always, will make decisions based on incoming data but if it’s a very close call, protecting the institution’s political independence against Trump’s pressure tactics would argue in favor of staying the course rather than appearing to cave.

MM also wrote back when he was nominated that anyone who thought Powell would be a patsy for Trump were in for significant disappointment. And that is so far proving to be true.

POWELL PREVIEW — Via Pantheon’s Ian Shepherdson: “[W]e very much doubt he wants to give the impression that the Fed is seriously contemplating skipping either the December or March hikes. We’re sure policymakers at this point would prefer not to see turmoil in the stock market, or the manufacturing sector losing steam as a result of the tariff wars with China.

“But these forces aren’t powerful enough yet to ease the downward pressure on the unemployment rate. Accordingly, we were not at all surprised to hear Vice Chair Rich Clarida emphasizing [Tuesday] that downside risks to the economy have diminished in recent years and that gradual rate hikes are appropriate given the uncertainty over the level of the neutral funds rate. … This was not a dovish speech.”

REQUIEM FOR THE G-20 — Mohamed A. El-Erian on Bloomberg View: “Despite weakening and diverging global economic growth, the aspiration for the larger discussions among leaders representing about three-quarters of global gross domestic product has been reduced to issuing bland joint communiques — and that’s assuming an agreement on this can be achieved. … Created with the hope to reflect new global economic realities, the G-20 has been on a downward trend since its successful London summit in April 2009.” Read more.

ONE GOP SENATOR’S PLAN TO SAVE RURAL AMERICA — The latest POLITICO Money podcast features my conversation with Sen. Tim Scott (R-S.C.) on his Opportunity Zones plan, included in the tax cut bill, to offer significant tax incentives for investment in rural and small town areas largely left behind in the economic recovery from the Great Recession.

Scott: “In the Opportunity Zones, the poverty rate is over 30 percent. I look at it from a common-sense perspective and I ask myself, ‘Is there a way for me to positively impact the lives of 50 million Americans by providing an incentive to unlock investments for those areas?’” Sign up here.

GOOD WEDNESDAY MORNING — Big thanks to Victoria Guida for the one-day fill in while MM was in transportation hell. Email me at bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver at aweaver@politico.com and follow her on Twitter @AubreeEWeaver..

Let Women Rule your inbox: The Women Rule Newsletter is a weekly email that shares original content, practical advice, backstage stories, special events and impactful resources for women at any stage of their career. If you are a woman looking to lead or grow your professional network, look no further than Women Rule. No one rises to the top alone, so sign up for our newsletter and get started today.

THE ADAGE “WORK HARD AND GET AHEAD” is a waning reality in America today. The question is: What can Washington do to foster more opportunity and prosperity in struggling communities across the country? POLITICO convened a bipartisan group of 14 business leaders, thinkers and policymakers to explore the problem and identify solutions that have a realistic path forward with political leaders of both parties. Read the latest issue of The Agenda to learn more.

GOP HOLDS MISSISSIPPI SENATE SEAT — Via @NBCNews at 10:14 p.m.: BREAKING: Cindy Hyde-Smith (R) wins US Senate runoff in Mississippi, @NBCNews projects.” Read more.

DRIVING THE DAY — President Trump has lunch with New York Governor Andrew Cuomo and attends the National Christmas Tree Lighting at 5:00 p.m. … Big day for economic news and data with the Powell speech leading the docket at noon … Third estimate of Q3 GDP at 8:30 a.m. expected to be unchanged at 3.5 percent …

Trade numbers at 8:30 a.m. expected to rise to $77 billion from $76.3 billion … New home sales at 10:00 a.m. expected to rise to 575K from 553K … FOMC minutes at 2:00 p.m.

MORE ON CLARIDA — Victoria for Pros: “Clarida … emphasized the strength of the U.S. economy but argued that business investment needs to increase to boost productivity growth. … Clarida also pointed to productivity growth as an important dynamic in why inflation is running at or close to the Fed’s 2 percent target ‘and not well above it, when growth is strong and the labor market robust.’” Read more.

BROWN WANTS GM ADDRESSED IN ANY TAX BILL — Our Brian Faler: “Sen. Sherrod Brown (D-Ohio) is demanding that any year-end tax legislation address General Motors’ announcement that it is laying off thousands of workers. Brown, a tax writer and potential 2020 presidential candidate whose state is home to some of those workers, blamed GM’s decision on provisions in the new tax law, H.R. 1 (115), allowing companies to pay a lower tax rate on their overseas earnings than they are charged on their domestic profits.

“He wants to end that as part of any tax legislation lawmakers move before the end of the year — a likely impossible demand given time constraints and the complexities of the issue. ‘This bill is meaningless unless [President Donald Trump] actually addresses the real issues of the day,’ Brown told reporters on Tuesday. ‘I can’t think of anything more important.’” Read more.

More from Brian for Pros on details of the last minute tax effort: “House Republicans Monday evening unexpectedly released a 297-page tax bill they hope to move during the lame-duck session of Congress. The legislation would revive a number of expired tax ‘extenders,’ address glitches in the Tax Cuts and Jobs Act and make a range of changes to savings- and retirement-related tax provisions.

“Other parts of the bill would revamp the IRS, provide new tax breaks for start-up businesses and offer assistance to disaster victims. The measure amounts to House Republicans’ opening bid in negotiations with the Senate. They’ll need Democratic support there to move any changes, and it’s unclear lawmakers will agree to any of the provisions before adjourning for the year.” Read more.

BANKERS PUT PUSH GETS GROOVY VIBES FROM BLUE WAVE — Our Zachary Warmbrodt: “Banks haven’t been able to cash in on marijuana money, but there’s new momentum to change that with Democrats about to take charge of the House. With anti-pot Attorney General Jeff Sessions gone and even more states legalizing weed, bankers who have grown increasingly frustrated by legal restrictions on the cannabis business are working with Democrats and Republicans to change laws curtailing transactions that deal with marijuana.

“The new push by banks to handle financial transactions for the pot industry is the latest sign that politics of marijuana are rapidly changing in the nation’s capital, as voters across the country back legalization. Rep. Ed Perlmutter, a Colorado Democrat who has taken the lead on legislation in the House, said there was ‘a real opportunity’ to move a bill aligning federal and state marijuana laws for banks and credit unions.” Read more.

STOCK INDEXES EDGE HIGHER — AP’s Marley Jay: “Stocks wobbled Tuesday as large high-dividend stocks rose and smaller companies sank. Major indexes were coming off big gains the day before. Big health care companies including Johnson & Johnson rallied, as did telecommunications and household goods makers. Steel and other materials makers skidded, and a steep loss for United Technologies pulled defense contractors lower.

“Technology companies rose even though President Donald Trump said he expects more tariffs on goods imported from China, some of which would hit products like computers and smartphones. Trump is scheduled to meet with Chinese President Xi Jinping during the Group of 20 summit in Argentina later this week.” Read more.

INVESTORS CONFRONT FEARS AHEAD OF G-20 — WSJ’s Amrith Ramkumar: “Softening economic data are adding to investor anxiety ahead of the Group of 20 summit that starts Friday in Buenos Aires. The Citigroup Economic Surprise Index for developed markets, a measure that tracks whether economic reports are meeting projections, has fallen to its lowest level in almost six months. The gauge is in negative territory, meaning data are broadly starting to come in below economists’ expectations. A similar index for emerging markets has been in mostly negative territory since June.” Read more.

GOODBYE APPLE, HELLO MICROSOFT — Bloomberg’s Jeran Wittenstein and Dina Bass: “Microsoft Corp. surpassed Apple Inc. to become the world’s most valuable publicly traded company. All it took was a $300 billion rout. After briefly claiming the top spot on Monday, Microsoft shares rose 0.6 percent Tuesday, pushing the company’s market value to $828.1 billion at the close. That exceeded by more than $1 billion the value of Apple, which has tumbled this month on concern about iPhone unit sales. The last time Microsoft’s market capitalization was bigger than Apple was in 2010, according to data compiled by Bloomberg.” Read more.

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