I don't think we've seen the top yet, but I also don't think there's much more gas left in the tank of this historic bull market. Prudent investors are preparing for what's coming. And you can't stop what's coming.
The U.S. - China trade war is coming to a head.
Xi delivered on his threat to retaliate against Trump's latest round of tariff Sabre-rattling and the market doesn't like it. What will Trump do next?
The ball is now in Trump's court and I don't think he is likely to back down right away. Expect more trash talk and more market weakness for the rest of this week.
Eventually Trump will find a way to make a deal that is less favorable than he is demanding and he will claim total capitulation by Xi and a total victory for him. That's how he rolls.
The market is down 5% so far and I expect it to be down 10% before Trump finally caves and settles. Trump does not want to be painted as the guy who wrecked the stock market.
Trump's strategy of "Jawboning" hasn't been working
Jawboning is an attempt to persuade or pressure by the force of one's position of authority. Trump believes that he can bully and cajole China into submission by talking trash and ratcheting up tariffs on Chinese imports. Will his strategy work? Maybe, but China is no pansy when it comes to flexing trade muscles.
Xi has now called Trump's bluff. My view is that Trump will continue to jawbone Xi and he's not likely to back down quickly because that would make him look weak. More likely, Trump will escalate the rhetoric. The stock market will not react kindly.
Eventually Trump will blink and agree to a deal that favors China. He and his staff will try to put a positive spin on the deal but Trump will have caved once again.
What's the endgame?
My view is that after the sturm and drang (German literary movement characterized by works containing rousing action and high emotionalism that often deal with the individual's revolt against society) is over, trade relations with China will return to normal. Trump will claim total victory, but nothing much will change.
What about the stock market?
This dance between Trump and Xi is likely to continue for a week or more. I expect the market to decline about 10% from its recent high water mark.When Trump begins to get pressure from advisors like Kudlow and Mnuchin he will cave.
Therefore I'm playing this as a 10% correction for now. Stay tuned for updates.
Eric:
How are things going? I like your website. I’m turning the corner in my career in the Kansas City area (although I currently reside in Arizona). I’ve been in K.C. since leaving Mother Northern in 1999. Could you reach out to me? I have some questions which I would appreciate your input.
Thanks