WASHINGTON. Is our headline today a bit confusing? Maybe that’s because we’re confused, too. Wall Street stock averages have careened between extreme optimism and existential terror. This week’s action seems based primarily on the ongoing, bizarre currency tactics of an out-of-control Turkish government. But today, without advance notice, China trade talks have erupted once again. That’s forcing another about face in the direction of stocks, which just endured a nasty mini-crash on Wednesday. So, is President Trump winning his trade war with China?
Looking at this morning’s financial news headline stories, all of us could be forgiven for thinking so.
“National Economic Council Director Larry Kudlow confirmed to CNBC’s ‘Squawk Box’ earlier reports saying China and the U.S. will hold a fresh round of trade talks later in August, giving investors hope that the two world’s largest economies can solve an ongoing trade spat.
“The U.S. and China have been engaged in a trade spat recently as the U.S. slaps tariffs on Chinese imported goods. China, meanwhile, has retaliated with tariffs of its own on U.S. goods. Investors worry that an escalation in trade fears could lead to a global economic slowdown and lower corporate profits.
“‘My guess has been that tariffs have been a tactic of the Trump administration’ to bring people to the table and negotiate on trade, said Maris Ogg, president of Tower Bridge Advisors. ‘I think getting this resolved before the midterm has become an imperative to remove that cloud of uncertainty from the market.’ Ogg added that once the trade dispute is resolved, the market will go back to focusing on strong earnings.”
Shrewd guess, Maris Ogg. Regarding the China trade talks and the possibility of Trump winning them, we’ve only preached the same thing in this column for months. But, whatever.
China trade talks, Turkey, and other headline grabbing headlines
The trade-oriented financial news media merry-go-round has had traders and investors spinning all week. News alters between cheering for the best U.S. economy ever and jeering the guaranteed disaster the Trump administration’s “tariff terrorism” is about to cause.
Bipolar trading action earlier this week was pegged to alternating positive and negative rumors stories based primarily on Turkey’s declining currency, as exacerbated by the administration’s threats of further tariffs.
But suddenly, the slumbering economic elephant in the room – China – hit the headlines Thursday morning, dumping Turkey off the front page. Now, headlines will obsess on the allegedly upcoming China trade talks. Until they don’t.
Meanwhile, Wall Street decided to party hearty Thursday. Left for dead yesterday, the Dow appears re-animated, soaring over 400 points to the upside (+1.62 percent) as we near today’s closing bell.
Trump winning scenarios vs. real China trade talks: Parsing media jargon
Today, the financial media is trumpeting seemingly positive developments in the ongoing “Trump Trade War” disaster scenario promulgated by its legion of political hacks. Yet if you closely examine the CNBC snippet we’ve run above, you’ll see that the U.S. plans to “hold” a “fresh round of trade talks” with China “later in August.” This is classic Washingtonspeak, promising much more Trump winning than it likely delivers.
The term “trade talks” doesn’t imply “trade agreements.” Worse, a “round” of trade talks simply means that neither side actually expects an actual final agreement in this economic version of kabuki theater. And “Later in August” means the idea of a meeting has been floated, but no meeting has actually been scheduled.
Ah, but what the heck? Better to promote a bullish rumor today to give markets a boost after Wednesday’s bearish Turkey-based disaster headlines clobbered stocks across the board. This stuff makes traders – particularly of the high-speed flavor – insanely happy. But it makes small investors, like yours truly, reach for the Maalox and the Tums.
The simple reason is, you can’t trust this stuff. The plunging Turkish lira. Those promising (but yet to be scheduled) China trade talks. The upsetting (for the media) prospect of Trump winning. It’s generally best not to move on these hype headlines. Both the story and the meme can turn on you again the very next day. And it’s exactly what Mr. Market has been doing all this week.
The world of what’s happening
The reality: Yes, the Trump tariff regime is quite nerve-wracking in the short-term. But these tariffs are not the ghost of Smoot-Hawley. That act, after all, was a legislative nightmare, not a creature of the Executive Branch.
The Trump tariffs are – we’ll say this again – an attention-getting trading tactic. The president and his advisors designed them to cause enough damage abroad that our sometime trading partners sit up and take us seriously when it comes to negotiating a fairer trade deal. For us.
Like Yogi Berra said, “It ain’t over ‘til it’s over.” And it ain’t.
The status quo of “free trade”
Our trading partners / adversaries like things just the way it is. They want to perpetuate the scenario where American taxpayers, and legions of unemployed and underemployed American workers, subsidize the rest of the world’s cushy, soft, and very fake socialist economies.
But President Trump wants to get the American advantage back after nearly 30 years of depressing economic erosion. Only wealthy globalists and socialists could logically oppose this aim. And, of course they are.
Meanwhile, we have what we have and must act accordingly, whether we’re dealing with the EU, Turkey, or immersed in trade talks with China.
How to manage a conservative portfolio during serial financial crises
We’re holding on to the bulk of our portfolio while continuing to seek out newly launched short-term preferred stocks and “baby bonds” to add to our portfolios. The latter requirement has become more important lately, as our older holdings in these areas have been getting “called” (redeemed). That means we need to replace them.
Alas, the fixed and stable interest rate environment has been quite weird lately. The Fed has been hiking interest rates. Yet the new preferred stocks and baby bonds meant to redeem and replace the old ones carry lower interest rates rather than the higher interest rates you’d expect, given higher prevailing interest rates.
We won’t get into this layer of complexity right now. But realistically, what it means for portfolios is that we need to lock in those new interest rates right now when we can in order to maintain our preferred ratio of income-oriented investments.
This is fairly boring when it comes to the greater adventures involved in buying and selling common stocks. But as we get older, it’s increasingly sensible to increase our holdings of income-oriented stocks rather than going for crazy capital gains.
Right, we’re not ignoring capital gains. Who can in this Wild West market environment. But we need to balance this with at least some percentage – 30-40 percent – of stability in our portfolios.
As for today, let’s enjoy Wall Street’s “China Solution” rocket ride. Regarding Turkey, the EU, or China trade talks, nobody knows what tomorrow will bring.