Apparently they've been together for years? And say I love you though only because they have to? And are basically just fuck buddies but still apparently care enough to get upset and over-analyze the relationship to their friends? And sometimes China dresses up in leather and uses its 7 piece bondage kit on us?

China, meanwhile, calmly played its cards with a decades-long plan centered around capitalistic mercantilism, a game the United States claimed to play best but somehow forgot most of the rules. Even when holding the trump card of a reserve currency, mercantilistic domination depends on making something the rest of the world wants. We don’t and they do. The Chinese “object” has turned into an object lesson for developed economies that debt-financed consumerism is reaching an end. This affair then, which has sustained global growth during much of the 21st century, is vulnerable. Both parties still play kissy face and say “luv ya” (weak form for “I love you”) but there is tension there. China questions our credit quality and the yields on their trillion dollars of Treasury bonds. The U.S. questions their exchange rate and claims currency manipulation behind closed doors. This couple claims to still be dating, but “hooking up” may be more like it. Even then, no one stays the night, claiming they left their toothbrush at home.

[...]

And what of China and its fling as mercantile dominatrix? Here to stay – get used to it, PIMCO would say, but at the same time a substantial currency revaluation would assist its image and economy in its new role as the global economy’s economic locomotive. Consider investing, therefore, in non-dollar currencies that have strong trade ties with the Asian continent. Global equities? They’re cheap – dividend yields are higher than bonds in many cases – yet if growth falters there may be more downside to come.

A good relationship, as any adult knows, takes hard work and even then true love never runs smooth. We are into the “bumpy journey” phase of our New Normal where fear, lack of policy options and loss of control can dominate relationships. At a minimum, investors need to prepare for disharmony even with the hope of eventual reconciliation. Those old-fashioned love songs have become new-fangled freshly entangled ones from which an escape may be hard to envision.

Anyone?

New-Fangled Love Songs [PIMCO via BI]