Time For A Fresh Take

Equities start the day higher as we catch a little bounce from the “Sacking of Kings Landing” selloff. What an episode right? Had to be some of the best TV I’ve ever seen, just an emotional gut punch, and frankly a very appropriate lead in to a massacre in the market the very next day. So look, I needed a few days to let recent events sink in before I could give you a fresh update so here’s where I think we currently stand. It’s been proven that the statement “some kind of trade deal is going to be made because it’s in both sides best interest” is a really bad take. I’ve said it a few times here and in the media and it’s been shown to be demonstrably wrong. I also thought they’d kick the can on raising tariffs so I should probably be leaving international trade policy to my friend Dan Clifton at Strategas. That being said, I do love pontificating so here’s a fresh take: I think the only way China and the US come to some kind of deal is if the market forces them to, specifically thru some kind of negative credit/equity event. Oh and a 5% selloff isn’t said event, on average we see three 5% selloffs a year so that’s not what I’m talking about. We’d have to see some kind of flame out because absent that why would either side budge? If tariffs knock 20-25bps off US growth would that be enough to cave in on negotiations? I doubt it, and if the market just kinda grinds along all summer that wouldn’t be enough either (in fact it would likely embolden MORE tariffs). What I’m trying to say is that I’ve finally come to the realization that “trade war” headlines aren’t going away anytime soon, if ever, so stop randomly buying / selling based on tweets. Fool me once, shame on you, fool me…umm what is it now about 62 times we’ve heard “trade talks are going great!” …then shame on me.

Well, it turns out that the market stopped worrying about tariffs and a trade war all of 10 seconds into the session because we basically went straight up all day. People buying the dip? Sure. Was the market oversold? Maybe, the peak to trough decline yesterday was around 4.6% and downside volume swamped upside volume. Is Arya going to kill Dany? I don’t think so because that seems too obvious. If the stock market doesn’t experience that “event” you mentioned earlier will that embolden the administration to enact even MORE tariffs? Absolutely. What’s the right amount to pay a babysitter? Please weigh in here (I might blog on this topic, I’d love to know what people think in 2019.  Feel free to @ me). Up 1.3% by lunch as the first meaningful dip of the year put up a better defense than the Golden Company. I don’t know, I guess I was really surprised by how strong the market was today; nothing has changed in the past 24 hrs. Maybe a 5% selloff was the correct discount for the current level of trade tension? Maybe I should stop using so many question marks in this blog?

We saw a small selloff in the afternoon and a close at 2,834 up 0.8% (late selling is always curious to me). Anyway, my friend @LJKawa wrote a great article today about tariffs and the market. Here’s the money quote: “The danger, though, is that American equities are caught in a so-called Minsky Paradox. Srinivas Thiruvadanthai, research director at the Jerome Levy Forecasting Center in Mt. Kisco, New York, mused about that earlier this year. The logic dictates that unless the market sells off, the president would feel confident in pushing forward with his trade offensive -- in turn raising the risk of an even bigger slide”. Look, I don’t know what the right answer here is. I want the US to protect its IP, I want our trade partners to treat us fairly, heck I think we all do. But ratcheting this thing up, which will happen if the market shrugs its shoulders, could lead to all kinds of crazy outcomes. Or maybe, like the Cold War, this stays with us for an indefinite amount of time and we just get used to it?  

News Highlights:

I have two final links for you tonight because I love them both equally

First of all, if you are a painter, I think your job is safe from robots


Second, who doesn’t love a good fail video!!