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Pork inspires Friday trading action. China tariff front improves

Written By | Sep 13, 2019
pork, China tariff

Photo of pork in a tub by Ben Salter, via Wikipedia entry on pork, cc 2.0, adapted to fit CDN format.

WASHINGTON –To paraphrase that eminent philosopher, Yogi Berra, the trading day ain’t over ‘til it’s over. But, as of 3 p.m. ET, an hour before Wall Street closes for Friday and the week, it looks like the Dow Jones Industrial Average (DJIA) will close slightly up, while the broader-based S&P 500 and the tech-heavy NASDAQ will close slightly down. Financial pundits, always fishing for reasons, pin much of Friday’s optimism on China’s uncommon fondness for all things pork. Which, in turn, is linked to apparent moves on the China tariff front.

China needs to pork up on pork

CNBC’s writers are attuned to this unusual twist, based to some extent on the huge per capital consumption of pork in China. That’s been a problem over there in recent months as a serious swine disease has decimated that country’s herds.

Making things worse: Until the current trade war, China had addressed its pork shortage by purchasing mass quantities of US pork. Except that stopped when Beijing slapped retaliatory tariffs on US pork exports to China, figuring that would bring the current idiot inhabiting the White House around. Which is where today’s CNBC report jumps in.

“[Friday’s market] focus is largely attuned to global trade developments, as the world’s two largest economies continued to prepare for talks in early October aimed at breaking their trade war impasse.

“The New York Times reported Friday that China will exempt some U.S. agricultural products, including soybeans and pork, from additional tariffs.

“On Thursday, the U.S. welcomed China’s renewed purchases of American farm goods, with President Donald Trump saying it was expected Beijing would purchase ‘large amounts’ of agricultural products. His comments came after his decision to delay increasing tariffs on $250 billion worth of Chinese goods from Oct. 1 to Oct. 15 as a ‘gesture of good will’ to China.”

Promises, promises…

Of course, China has promised to increase imports of this or that US farm product over the past year or so, and little if anything actually came of this. But apparently, a scarcity of pork in China creates as much fury among the Chinese Everyman as a shortage of salty, full-fat and fully nitrated bacon creates in my house. Which, in China, means a lot of political pressure from the proletariat, even in a Communist country. Which, in turn, meant that improvements in the retaliatory Chinese tariff front could create provisional happiness on both sides. Leading to what, however, I wouldn’t know at this point.

Back on topic, China has been trying to address some of their shortage by switching to other international pork suppliers like Argentina. But under the hood, I suspect they still need more pork over there to meet the demand, so that’s probably at least part of the reason why China has backed off a bit on its full scale, politically-oriented attack on America’s farmers and pork producers. They’re some of Donald Trump’s most rabid supporters, wouldn’t ya know. So a mildly positive move by the Chicoms on the China tariff front would at least make both sides look good to their constituents. For a couple of weeks anyway. Until the Chinese fail to deliver on their latest promise.

For the Chinese, the move on pork probably looks good to the constituency of proles inhabiting the current Chinese Empire, of course. But also, I wonder a little bit if anyone remembers China’s special American pork connection. Namely, the fact that the Chinese bought well-known American pork producer Smithfield a number of years back, which must be creating a real headache for that relationship.

Mr Market wants to get bullish. But Mr McClellan may be saying “No.”

At any rate, despite this treacherous time of year for stocks, Mr Market really seems eager to go back on the bullish warpath again this month. But what makes us nervous here, even though we love to be bullish, too, is what we’re seeing on our favorite pair of go-to charts, at least as of Thursday’s close.

First, take a gander at the McClellan Oscillator below. Despite Thursday’s tiny down-leg, this puppy looks very much overbought, as the measure now hangs far above the zero line.

pork, China tariff

McClellan Oscillator, COB 091219. Courtesy

Mr VIX seems complacent

Then, take a look at the Thursday COB VIX chart, a measure of market volatility. This chart tends to spike upward sharply whenever Mr Market gets really nervous or has a hissy fit. You can see this most recent hissy fit toward the right side of the chart below. Except, what’s this? Just over the last few days, the VIX has rapidly headed back down toward what traders would call “complacency.” Panic subsided? Okay to buy stocks again?

pork, China tariff

VIX volatility index, COB 091219. Courtesy

So, while numerous other stock and index charts are looking increasingly bullish, tempting traders and investors to get rid of “risk off” investments like bonds and utilities and pork up (pun intended) on higher risk stocks, the McClellan Oscillator tells us to expect some kind of correction – soon. And the VIX tells us that traders may be getting too comfortable too soon.

Bulls, bears and pigs

Always remember that old adage, “Bulls make money, bears make money, but pigs don’t.  Which right now means that maybe we shouldn’t pork up our portfolios with too many new, optimistic picks. Because higher China tariffs on pork and everything else could return rather quickly and squash any rally like a bug.

In any event, our portfolios as they currently stand are moderately negative today. That’s largely due to our continuing heavy positions in bonds and preferred stocks. Most of these stodgy investments currently find themselves under some pressure due to the Fed’s constantly asinine and largely inscrutable position on interest rates.

So do we dump some of these positions and put more risk back into our portfolios? Or do we hold on to them and continue to collect really large quarterly interest payments from them? Even if these stocks and bonds drop below our initial purchase price? Which they have yet to do, BTW.

A little Friday spec fun

For the hell of it, we speculated a bit today by picking into gold and silver ETFs SGOL and SIVR, which trade commission-free at our brokerage. We’re toying with the idea of picking up some shares of perpetual basement dweller and former Dow stock Alcoa (trading symbol: AA) as well as shares of the recently and unfairly battered shares of Cleveland Cliffs (CLF). That would catch the pro-cyclical swing that’s supposedly underway.

But by and large, Mr Market is slowly wobbling back and forth on his random walk down Wall Street, like some moderately drunken sailor. So we’ll leave it there right now and get ready to start a weekend we plan to spend by not thinking about stocks at all.

Have a good one.

UPDATE: Stocks closed pretty much flat on Friday. Dow up a fraction, S&P 500 and NASDAQ down about the same fraction. Yawn. 

– Headline image: Photo of pork in a tub by Ben Salter, via Wikipedia entry on pork, cc 2.0, adapted to fit CDN format.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17