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Trade war hype? U.S., China duke it out as stocks get hammered

Written By | Jun 19, 2018
trade war hype

Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection. See credit and link for this article.

WASHINGTON. In early Tuesday trading action, U.S. stock market averages continued Monday’s plunge with a vengeance. At one point today, the Dow Jones Industrials plunged over 400 points to the downside. But that drop had nothing to do with corporate numbers. It was due instead to the continuing media trade war hype that negatively exaggerates the current trading atmosphere.

Recovering somewhat as the day advances, the Dow currently hovers around -340 as we write this report, circa 1:15 p.m. ET. That’s a one-day loss of nearly 1.5 percent. The broader-based S&P 500 and the tech-heavy NASDAQ are currently off just under 1 percent.

The media’s trade war hype continues to stretch the limits of hysteria. And since it’s headlines (not numbers) that drive Wall Streets machine trading, markets react negatively, just like the headlines tell them to.

Cable TV’s vapid, blow-dried commentators apparently can’t distinguish Trumpian negotiating tactics from actual administration policies. So we get that constant stream of trade war hype, scare headlines and Trump-bashing TV interviews. But much of it is media propaganda. Its aim is to support Democrats eager to find another meme to help them trash the President. After all, what else can they do?

Except for CNN, most media outlets have entirely given up on the FBI’s phony (and illegal) Russia-gate fable. So they’ll work this angle (or push for open borders) to keep the anti-Trump narrative going. Too bad for them. Their tactics are precisely how you get even more Trump. (But let’s not tell them just yet.)

Whatever the case, according to the #NeverTrump #Resistance at CNBC, a vast majority of stocks continued to plummet, “because Trump.”

“[A]fter President Donald Trump’s latest threat to China increased fears of an impending trade war between the world’s largest economies…

“Shares of some of the biggest chipmakers fell in the premarket given their large exposure to China. Qualcomm, Advanced Micro Devices, and Nvidia all dropped at least 1 percent.

“Ford Motor, which also does a large amount of business in China, saw its stock pull back about 1 percent before the bell. Meanwhile, Caterpillar and Boeing — considered to be two bellwethers for trade tensions on Wall Street —both dropped at least 1.3 percent.”

Preferred stock guru Tim McPartland– who’s moved his fine website yet again – has a similarly negative view of cable TV’s business media types. He recently provided the following assessment on last week’s negative market action.

“I have to admit that I thought it was much worse–I don’t pay too much attention to the equity markets unless they have a REAL move up or down (maybe at least 300-600 points in a day).  All I remember was the talking heads on CNBC were saying this was the ‘wors[t] week of the year”–what idiots–I really need to have different background noise in my office.”

CNBC headlines and frantic machine- and high-frequency trading programs thrive on fake “background noise.” Small investors like you and me don’t. Small traders and investors, however, are  susceptible to this largely fake media trade war hype for two reasons:

  • They get bombarded 24/7 with U.S.-China and U.S.-Eurozone trade war hype all the time and understandably tend to assume the worst
  • Having enjoyed years of low volatility in American markets, they’re not quite sure what to do next as increasingly normal economics regains its influence over corporate P&Ls.

Bottom line: Yeah, a real trade war could develop here at some point. But Trump isn’t Herbert Hoover, and his policies aren’t virtual Smoot-Hawley.

But investors need to understand reality. America has gotten a raw deal from its trading partners for years. As we’ve written before both China and the Eurozone continue to mentally extend the Marshall Plan way past its sell-by date.* So what’s wrong, in the end, with leveling the playing field a bit? And what’s wrong with keeping our technologies safe from Chinese predation? And why shouldn’t we keep middle-class American jobs right here rather than sending them elsewhere?

In better news for consumers (and worse news for banks), the yield on U.S. treasuries continues to retreat from last week’s interest rate hike highs. Oil prices are also a bit less irrationally exuberant. But we’re not seeing oil’s modest retreat at the average American gas pump. Yet.

How we’re reacting to the trade war hype

We’re hanging in there with our portfolio, having at least partially thrown our “sell in May” strategy to the winds. Nonsense like the current market action creates buying opportunities. We’ve been picking up a few of these during today’s market plunge. Our buys include a few more shares, here and there, of the sector-tracking ETFs we’re phasing over to in our portfolios.

Various key ETFs, particularly those with a good track record and available without commission, seem to be doing significantly better than our stock picks lately.

As a result, we continue to shift our investing strategy to give ETFs notably higher weighting in our portfolios. It’s a way to stay in the action.

But at the same time, we’re largely staying clear of violent overreactions in individual stocks. That’s particularly true in the tech and oil sectors.

We’ll write more about specifics in a companion column we hope to post later today. If we succeed, we’ll provide a link from this post.

How those international trade negotiations might turn out

Meanwhile, there’s no reason for traders and investors to get unduly alarmed at President Trump’s trade negotiation tactics. They haven’t exactly succeeded just yet. That’s because the kind of sea changes he seeks in international trade policy are not what our spoiled, outraged “trading partners” want.

But Trump persists in trying to cut a much better deal for America’s workers and businesses. Talking heads aside, it’s about time a U.S. President stood up for the rest of us.

We’re just in the early innings of this relatively dangerous game. So let’s be cautious, sure. But let’s also not allow ourselves to panic and leap to negative conclusions. Unlike TV dramas and sitcoms, complicated stuff like international trade policy takes a lot more than an hour (with commercials) to reach a happy ending.

*Note: Right, we know that China was not involved in the Marshall Plan. But they sure act like it’s our duty to submit to their unfair trade policies at our expense.

Above cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.


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