Oh The Humanity

Equities start the day lower on the 82nd anniversary of the Hindenburg disaster. Appropriate right? A random trade war tweet by our President on Sunday night and I’m walking into work with futures down 1.5% saying “oh the humanity”. Remember last week when I said it was time to “nitpick” the market? Remember how we were soaring on good economic news, better than expected earnings, and a dovish Fed yet internals were a bit questionable and optimism was starting to reach excessive levels? Yea…we were due for some kind of “shock,” it just so happened to come from a tweet. By the way, don’t tell me you aren’t on Twitter. If you are in the Financial Services Industry and you ARENT on Twitter you basically stand the chance of missing critical market moving events in real time. You don’t have to tweet but you do have to listen to what is basically the tape now. JOIN TWITTER (then follow @bullandbaird). Anyway, the lazy take is that ramping up a trade war is bad for the market. I’ll admit that volatility and headline risk will increase in the short term and if this morphs into a full blown Trade War that’s just outright “maybe do some recon before flying your dragons into enemy territory” levels of bad. But maybe, just maybe, the right take here is that this will 1) keep the Fed on the sidelines 2) reduces optimism in the market 3) maintain a Wall of Worry and 4) test the notion that there are people on the sidelines ready to buy dips. My man Clifton @strategasrp says “it’s always darkest before the dawn” and he’s right. We’re in the endgame of negotiations now, maybe this forces China and the US to make a broad sweeping deal that surprises to the UPSIDE. Hey, you know what surprised to the upside? That episode of GoT last night, which was infinitely better than the Battle of Winterfell.

Most of the initial reaction today was positive….can you believe that? The low was made about 2 minutes into the session and by lunch we were down less than 1%. Why? Well, the notion of a “trade war” has been with us for over a year now, it’s not like the battle has just begun. “But Mike, if that’s the case then why were futures down 2% on Sunday night?” A) because people love to overreact and B) the market doesn’t react well to surprises. Like me, I don’t react well to surprises (can you name the movie?). It seems like we’re giving the benefit of the doubt to the process, that a positive outcome is more likely than a full blown trade war and that we just gotta get thru the endgame. Remember when Cap stood alone and all seemed lost? This process is probably harder than defeating Thanos but if it’s done the right way we could be looking at the next great catalyst. Frankly we’re lucky this news came out, there was nothing on the radar today. Earnings are basically over, the Fed is done for awhile, and there was no economic data. I mean I could’ve filled a blog with questions like “why not just fire those giant arrows at Dany and the 14 people standing there thus ending the war” or “why do I not own this” but instead we got something market related to talk about!!

We ALMOST got to green (the Rusk2 managed to) but in the end closed down 0.5% on a day that turned out far better than people thought it would be. Here’s the sitch, broken down as simple as I can make it: With respect to the market there’s nothing more powerful than an easy Fed. If the Fed is dovish that fact alone can outweigh many things including trade war rhetoric. We have an economy that is humming along, a stock market that is humming along (not without its faults though), and the Fed on our side. Those three things are likely worth more than the uncertainty around China / US relations. Speaking of that, let’s give the last sentence to my guy Voltaire: “Uncertainty is an uncomfortable position. But certainty is an absurd one.”

News Highlights:

So I have two hard and fast rules. #1: I always tip street musicians. If someone is going to take the time to create music in public I plan on rewarding them (especially violin) 

    #2: I love the Irish, especially when they do card tricks while drunk. Love the Irish.