Trade War Isn't the Problem

The market has gotten myopic about 2 things:  the Fed and US/China trade war.  As traders and investors are apt to do, they forget the big picture and focus on the latest headlines.

A couple of weeks ago, before Powell opened his backtracking mouth, the market was worried that the Fed was going to tighten until something breaks and that there would be no resolution to the trade war.  Fast forward to now.  Powell is now seen as being dovish, and wary of hiking more than 1-2 times, and the US/China trade war is looking to be resolved in a market positive way.

What Powell has done is not enough.  He has already broken something, and people don't realize it.  It just happened to be something outside of the US.  Global short term dollar funding is based on LIBOR, and the move higher that it made from November 2017 to April 2018 is what broke the camel's back.

Unless Powell decides to cut rates and totally reverse what happened from January to May, he is coming up too little, too late.  He has already pushed down global growth just as the Chinese 2016 stimulus was wearing off.  And that growth won't be coming back for a while, unless China decides to throw the yuan under the bus and do another massive fiscal stimulus while the Fed is still reducing its balance sheet.  That probably won't happen unless things get really bad.  

On trade.  It was probably the most hyped up wall of worry this market faced since Brexit.  And as we all know, that is a nothing burger.  The amount of the tariffs is so small, and the threat of it actually going higher was so tiny, that I was a bit surprised that people were actually worried about a bad outcome at the G20.  Trump telegraphed what he was going to do in early November, and people ignored it.  He wanted to do a half-ass deal, calm down the rhetoric, and make the stock market happy.  He accomplished all those things.  Earnings aren't slowing down because of Chinese tariffs.  It is slowing down because we are late cycle and the central banks are not stimulating anymore.  It has nothing to do with the trade war, no matter how many times the so called experts on CNBC keep babbling about trade war as hurting earnings and "visibility".  BTW, anytime you hear the word visibility on a conference call, sell the stock.  Its only mentioned when revenues are going down and they don't want to say it, instead saying they have less visibility.  A euphemism for the crap is about to hit the fan.  

We have a monster gap up and I have sold longs and waiting for a spot to get short.  With Powell testimony probably coming up on Thursday (Wednesday is a holiday), the market should rally into it, as he is now considered a dove and a bull catalyst.  After he is done, it should be time to short as long as SPX is above 2800.