Trade concerns draw blame for recent weakness in the market
Uncertainty about the shape of any deal takes center stage
The media changes tune on the impact of China trade negotiations
If a deal is reached, the shape of that deal will not be the most important issue for the market
Unfortunately this has become a constant topic on CNBC’s website and the number one reason given for the market’s current weakness (it appears to be their sworn duty to ascribe a reason to every slight jiggle, up or down, in the market). The reason I quote the on-line version of CNBC is because the live TV version is too painful for me to watch. On top of this, for the average investor their output is totally useless. But if perchance you’ve been watching, reading or listening via satellite radio (woe be upon you) the network has made a significant change in their analysis of TRADE ISSUES and this deserves your attention.
Background (The China-United States Trade War)
The nascence of our current problems has been the continual, unfavorable trade balance that has existed between the US and China for decades and the theft of US intellectual property. The deficit and theft became a strong element of President Trump’s 2016 campaign, a situation that he vowed he was going to change if he was elected. It was a campaign promise …like the wall. To that end the president, on January 22, 2018, fired the first volley in what was feared to possibly turn out as an all-out US-China TRADE WAR by placing a 30% tariff on foreign-made solar panels (China was the #1 manufacture). He followed that quickly on March 1 by placing a 25% tariff on imported steel and 10% on imported aluminum. The Chinese fired back on April 2 with new tariffs on 128 product categories. Man your battle stations! By February 9, in just 20 days, the S&P 500 had dropped 11% and we had turned a rip-roaring start in the 2018 market to a complete rout, all because of fears of a trade war.
Now, I am not here to defend Chinese trade practice or the theft of our IP, but there here have been winners and losers as a result of it. It has hurt US manufacturing but it kept the price of goods that many buy at Walmart at very favorable levels. I would just point out that we have been in the midst of a good economic recovery (for many years) even with this imbalance in place. During that time, in part due to the imbalance, a middle class has been created in China (newly-minted consumers) that is bigger than the entire US population. They are now, and will be, consumers of US made goods and services. That is very good news for us. In the meantime the way the administration has handled the issue of trade with China has appeared ham-handed and not well thought out. It has raised the specter of a trade war, which has cast a pall on the market. All wars are horrible .. trade wars included.
The boogiemen in the run-up to the Christmas Eve massacre melt away
- Interest Rate Fears … the number one boogieman … an aggressively hawkish Fed … Gone.
- Recession … still no sign
- Brexit … When if ever?
- Earnings Growth … slowing (should have been expected) but not bad.
- Last but not least … TRADE WAR WITH CHINA
The last of the big boogiemen facing the market from the Christmas eve meltdown, trade, has yet to be resolved.
Now, it looks like a deal is at hand
My view of any deal to be announced is that the worst case, a trade war, goes off the table. That would be a huge positive! Because the worst case after that would be a return to square one … no real deal, just the status quo. We’ve done okay in that type of environment. Best case would be somewhere between zero progress and the answer to all of our demands, but a trade war, that Sword of Damocles, hanging over the market would be removed. We would be safe. Also, nobody has been talking about, or expecting, a great deal … expectations are low or non-existent. Anyway, as it is being pronounced that a deal is near, nobody will care about the deal but that they should be ecstatic that the threat of a trade war will no longer be dangling overhead. However, that is not quite the way the folks at CNBC appear to read the situation.
Incomprehensibly they have shifted from obsessing about a really bad thing, a trade war, to whether or not we will get a good deal or a bad deal. Would a deal be a SELL-ON-THE-NEWS event.? Not only are they obsessing about the type of deal we’re getting but they are also ascribing that uncertainty about a deal is the reason for current market weakness. Here is an example from our friends at CNBC:
China deal looking more like a ‘sell the news’ opportunity for stock investors
Later on Tuesday CNBC posted this piece (link below), which should have been a cause for celebration. Alas, it was not to be. There was no joy on the trading floor for it seemed that the media mantra of worry about the shape of the deal had become a more important issue than the idea that any deal would remove the potential disastrous risk of a trade war.
“Trump pushing for China Trade deal … “
Confusion continues to reign supreme for CNBC consumers.
Anyway, I say give me a break CNBC! Have you no shame?
What’s your take?
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2 thoughts on “Trade Concerns Strike Fear Into Market! … A Counterpoint”
Hi Bill, Firstly, thanks for your “Kort Sessions”. I cut out the sensationalists long ago, but I’m always amazed at the over-reactions of market traders to every tidbit of news and their desire for more. Everybody wants some of what the snake oil salesman was selling except for a few who had heard it all enough times. I like reading your posts, it reminds me I’m not the only one. Cheers, AB
Thank you Andy for your readership and your kind comments. They are truly appreciated.
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