WASHINGTON, April 6, 2018: Thursday, Wall Street took a step back from it’s “we’re all gonna die” fear mongering. The reference point, of course, was President Trump’s on-again, off-again “trade war” threat against the statist “capitalists” running the Chinese Empire. When the Street apparently realized much of the Administration’s saber rattling was its opening bid in trade negotiations, stocks reversed Thursday afternoon and actually rallied. But now, trade war fears are back, front and center.
Friday, as one might expect, stocks find themselves back in the doghouse once again. They got smacked around the same way they got clobbered earlier this week. As we write this, around 3:15 p.m. ET, the Dow is off over 700 points and continuing to sink. That’s a one-day loss thus far of nearly percent. The broader-based S&P 500 and the tech-heavy NASDAQ are down only by a slightly lower percentage.
The trading action is simply hideous. Low volume sellers predominate. But the bulls have left the field. Trade war fears have returned with a vengeance.
Pundits already attribute today’s stock market plunge to Trump’s latest tariff threats against the Chi-coms. Our tongue-in-cheek, slightly-altered vintage cartoon above illustrates the ambiguity of it all (we hope). The original “Yellow Kid” cartoon ran in newspapers back around the turn of the last century.
On again, off again. Trade war fears are back on again Friday
It’s all pretty confusing in the end. Wall Street continually chooses to react with intense negativity to real or imagined “trade war” fears. Yet the negativity in many stocks is happening against the backdrop of lower trading volumes. To us, at least, this means that buyers and bulls are sitting the current trade drama out. That leaves many stocks at the mercy of sellers and short-sellers that are dumping shares indiscriminately.
Pinching in on this notion in more detail, ZeroHedge’s “Tyler Durden”just posted a detailed and, we think, a likely accurate assessment of the effects of a potential U.S. trade war with China. Bold text below via ZeroHedge.
“Two days ago, when we commented on the early morning plunge in stocks (which was subsequently fully reversed by the close in a historic 800 point Dow reversal), we said that a long-standing question – will Trump pick plunging stocks or trade war– had finally gotten its answer when CNBC’s Eamon Javers said that a ‘White House official said the WH recognizes that Trump’s actions are hitting the stock market, but this is ‘a longer term thing,’ and the president has to follow through on a key campaign promise.
“Moments ago, Trump himself confirmed that when in a radio interview on Friday morning, the president said that U.S. markets could face some ‘pain’ from the trade standoff with China and other countries, but – like on Wednesday – asserted that in the long-run, Americans would be better off due to his protectionist actions.
“Speaking on WABC Radio’s ‘Bernie & Sid in the Morning’ program, Trump said ‘I’m not saying there won’t be a little pain so we might lose a little of it but we’re going to have a much stronger country when we’re finished, and that’s what I’m all about.’
“‘We have to do things that other people wouldn’t do. So we may take a hit, but you know what, ultimately we’re going to be much stronger for it,’ Trump said during the radio interview on Friday. ‘It’s something we had to do, and ultimately if you take a look it’s not only trade with China – it’s everybody.’
Things will fluctuate
“To be sure, stocks have fluctuated dramatically in the past few weeks when Trump drastically intensified trade actions and jawboning against several countries, mostly China. Indicating that he is willing to accept some notable losses in the S&P, Trump said in the interview Friday that ‘the market’s gone up 40% or 42%.’ Which suggests that the president would be ok with a drop of 20% or so if it means winning a trade war against China.”
“Meanwhile, as reported earlier, in response to Trump’s latest tariff announcement, China said it would counter U.S. protectionism ‘to the end, and at any cost,’ as a war of words over Trump’s proposed tariffs on Chinese imports escalated.
“‘The Chinese side will follow suit to the end and at any cost, and will firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people,’ the Commerce Ministry said in a statement on its website on Friday.
“Finally, recall that China yesterday admitted that ‘squeezing’ the US stock market is perhaps its biggest leverage. It now has a green light from the president himself to do just that [ ] and between that, and Trump’s admission that stocks are going lower, it may be time to sit on the sidelines for a while.”
The market is having its ups and downs
To support that stock market squeeze – the one we’re facing once again today – ZeroHedge offers this illustrative chart. Check out that alarming double-top (or perhaps triple-top) that forms at the right of this chart.
Unlike “Tyler,” we hesitate to label Trump’s approach “protectionism.” After all, a great many of the industrial jobs America lost over the last few decades have disappeared for good. Trump wants to save at least some of this county’s remaining mass manufacturing expertise. He worries rightly that we need this in the event that – God forbid – we ever find ourselves involved in World War III. (Or IV, depending on how you count the Cold War.)
Simply stated, if America can’t make stuff anymore, and if America loses the expertise to ramp up production in an emergency, then America is toast in any future major conflict. We would define this as defense-minded prudence, not protectionism.
Current trade war fears are less than useless. After all, as President Trump gloomily admitted in a tweet earlier this week, we already lost the trade war a long time ago.