Business and Finance
Ian Winer is an investor, philosopher, humanitarian, writer and public speaker who connects people to the truth of market places and human behavior. Ian is the author of the book, Ubiquitous Relativity: My Truth is Not the Truth. A regular contributor to CNBC, Fox Business, The Wall Street Journal, Bloomberg, and Reuters, to name just a few, he is known for seeking connections through non consensus thinking and making it relatable to everyone.
We can't win a trade war with China. Period
TRADE WAR WITH CHINA… SELL EQUITIES, BUY FIXED INCOME TODAY
Bottom Line: We cannot win this trade war with China. Period.
Sell stocks because this is a downward spiral. The trade war will worsen and so will the economy. As the economy worsens, it is more likely we will get a Democratic administration hostile to corporate America. S&P earnings will have to be cut further, pinning all hope on central banks saving the markets.
Buy Fixed Income because the Federal Reserve will have to cut rates more aggressively and push yields even lower. This is also a nasty feedback loop, because even with lower yields, our bonds will be relatively attractive to other global bonds.
What Happened: Over the weekend, the Chinese struck back at the United States after our President raised the stakes with his threat to add tariffs on the balance of the $300B in goods we import from them.
The Chinese allowed the Yuan to break 7 / Dollar (insert Chart) which is the lowest level in a decade.
This move will allow Chinese exports to offset some of the tariffs they face.
The Chinese also ordered state owned entities to halt grain purchases from the United States.
Aren’t trade wars easy to win? No. Because it is not a fair fight.
The Chinese are an autocracy that controls most information within the country. Therefore, their citizens often only know what the Chinese government wants them to know. If their citizens complain publicly or online, they have been known to simply vanish.
We don’t have that luxury with a free press. Our farmers know what is happening to them and can complain about it publicly. Our retail federation can write open letters to the President discussing the disaster of the tariff policy. Corporate CEOs can complain publicly about the stupidity of this policy.
The Chinese have incentive to wait this out until 2020 because we have an election that could easily swing away from the President if the economy goes into a recession.
The Chinese do not have elections.
U.S. taxpayers will not stand for another bailout of farmers.
Technical Analysis is pointing to further declines.
The Dow Jones Transportation Index is flashing a code red. It is starting to look like a massive head and shoulders formation (INSERT CHART) It diverged negatively weeks ago from the overall market and is now closing in on the “must hold” level of 10,000. If it doesn’t hold there, it has no support until 9500, which is the neckline of this formation.
The Transports are the best lead indicator of the global economy.
Fundamental Analysis is also foreshadowing further declines.
The overall S&P 500 could see its first earnings recession since 2016: (https://www.marketwatch.com/story/the-first-earnings-recession-for-the-sp-500-since-2016-is-taking-shape-2019-07-30?mod=mw_theo_homepage)
The uncertainty of this trade war will cause the multiple of the market to compress leading to further declines.
Where could I be wrong? If we see a negotiated peace that saves face for both sides, then the market will settle in around these levels and be range bound.
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