Friday, March 2, 2018

Suddenly Tariffs?

Wow, talk about bring out the red herrings.  Let's suddenly forget about Jerome Powell, and talk about some steel and aluminum tariffs as causing a trade war?  You can't make this stuff up, these excuses for selloffs these days.  Globalization is not the reason the bull market has been going on for 9 years.  It is easy money, and eliminating corporate competition, neither of which is affected by some steel and aluminum tariffs.  In fact, those steel end users who can't handle an increase in input costs will just be more competition eliminated, ultimately resulting in a bunch of quasi-monopolies. 

It is as if the globalists think the economy has not had a recession in 9 years because of globalization.  Supposedly its a positive.  All it's done is slow down the road to total corporate welfare, which is the main goal of Trump, not creating a few steel and coal jobs. 

So why the abrupt weakness?  First, the bulls got too aggressive looking for a V bottom ahead of Powell's testimony, and they ejected quickly.  Then Powell disappointed the easy money crowd because he actually follows the mantra of data dependence, instead of just saying it.  The recent economic data has come in hotter, and he has responded by being more hawkish.  An actual Fed chairman who is somewhat neutral and not so dovish is a shock to the system after 20 years of Greenspan, 8 years of Bernanke, and 4 years of Yellen.  All those predecessors were stock market servants, delivering what the stock investors want.  Right now, there is uncertainty over whether Powell will be another stock market servant, and that is enough to get investors nervous.  He could eventually end up being another stock market servant, but the odds just went from -300 to -120. 

It is interesting to see that bonds after the initial selloff on the Powell testimony, has made back all those losses plus more, while stocks just keeping selling off.  A hawkish Fed chair can actually be better for the bond market than a dovish Fed chair, contrary to popular opinion.  If you slow down the economy, 10 yr rates will go lower, not higher.  People miss that point when debating whether Powell will hike 3 or 4 times this year.  If I was a long term bond investor, I would much rather have Powell aggressively hike the US into a recession than be dovish and hike too slowly keeping the bubble going. 

We hit 2660 yesterday, which was quite a drop.  And we've got the gap down today.  Its risk off Friday, so who knows how far they will sell it down.  I see strong support at the 2630-2640 zone, but will wait till next week to look for a dip to buy.  There are too many events coming up in the next 2 weeks for me to jump the gun and buy here.  I would wait till at least next week for those dip buys. 

1 comment:

Anonymous said...

Today was a nice v-bottom. I would be long here and am.