Wednesday, December 11, 2019

The Nuclear Option

Globalization has fostered a zero sum mentality towards trade and economics. So it's fitting that this is how it ends, with the world's two largest economies both believing they can win the trade war at the other's expense. Still not honest enough to realize that in a zero sum economy there will only be losers at the end...

Trump is boxed in by this trade war and now believes that escalation is his only way out. Which is why the nuclear option - raising tariffs - is gaining traction.

Trump trade advisor Peter Navarro:
“Get uncertainty out of the market by announcing NO deal until after the election and ride the tariffs to [election and trade war] victory.”

Last August when Trump escalated the trade war, the market tanked. Last Tuesday when Trump floated the idea of no trade deal until after the election, the market rallied all week.

He is testing the market. And so far he likes what he sees:

The "logic" goes like this, per Jeff Gundlach:

September 2019:
There Is ZERO Chance of A Trade Deal Prior To Election
‘If you subscribe to [the idea that] Trump’s an idiot or if you subscribe to he's an evil genius and very diabolical, that fits the pattern too. If he wanted to tank the economy now and get it geared back up for the election, what he would do is exactly what he's doing.

Today, Gundlach gave the Chinese perspective:
“There’s absolutely no reason for China to do a trade deal on the terms the United States wants when there’s an election coming up in less than a year”

In other words, Trump knows that he has NO leverage with the Chinese in this trade war until after the election. Therefore he needs to inflict more pain on the Chinese in the meantime. Which is why he has been floating the idea of pushing a deal beyond the election and raising tariffs now. And so has his psychopathic trade advisor Peter Navarro:

"Navarro, as Vara, claims that U.S. import duties “are working to defend [the] economy and have had no negative impacts on growth or stock market rise.”

It appears that in bidding up stocks to record levels ahead of this critical trade deadline, gamblers inadvertently gave the Trump Administration the viewpoint that trade wars are fun and easy to win. Markets never informed Trump that this trade war is a bad idea. So he never got the memo.

Hubris and disinformation are running rampant right now. Cramer was pounding the table after last Friday's blowout jobs report saying this gives Trump the ammo to raise tariffs. Yesterday we got rumors that the tariffs would be delayed, but not reduced. But Cramer believes that China is putting out these rumors to mislead the markets:

“I don’t want the viewers to be mistaken in thinking ... there’s a delay without hearing it from the president these days. I think it’s dangerous,” the “Mad Money” host said. “It seems that the Chinese are putting these stories out.”

Cramer, a supporter of the president’s hard-line approach to China, also said Monday that investors are ill-prepared for the possibility of Trump walking away from the trade talks with China."

We saw a spike in skew this week, which means that Goldman Sachs may have already gotten the memo. There appears to be a consensus on Wall Street that this is going to happen.

I have been pounding the table saying that a mini-deal or no deal is already "priced in" at these insane levels. Meaning deja vu of last year a selloff is likely. However, needless to say, higher tariffs are NOT priced in to this market. Nor is the prospect of Trump walking away from trade talks. 

Case in point, semiconductors which have been leading the market on the prospect of an imminent trade deal.

Outside of semiconductors, the mega Tech bubble is already imploding

And of course safe havens are rolling over as well

Meanwhile, global markets are hanging by a thread

The Fed gave Trump exactly what he wants: rate cuts, balance sheet expansion, and parabolic stock market. 

So in his puny mind, if there was any time to pull the trigger, it's now.

"For the win"