Delaying Tactics

Yesterday, Trump started to feel some heat of the backlash against tariffs and he relented by delaying auto tariffs for 6 months.  It is a preview of things to come with China.  It has been my view that this 10 year old bull market will end with a whimper, on no news and no blowoff top.  Ending with just classic chop at the top with a saturation of demand for risk assets leading to a lasting downtrend. 

The trade war started by Trump at the height of the stock market in early 2018, was initiated with confidence and a belief that the US stock market was invincible, and could withstand tariffs on China.  That ended up being true, because the SPX ended up making higher highs, and only was taken down by higher interest rates and hawkish talk from Powell. 

The whole strategy of Trump is to threaten and then delay, delay, delay, and then threaten and delay, delay, delay.  He wants to score political points by being tough on China, without the pain of a lower stock market from higher tariffs.  So what would be his ideal strategy?  Talk tough, threaten China, and then delay and delay to placate the stock market. 

Right now, we are in the talk tough and threaten phase of this trade war game.  The next phase will be to delay and act like there is progress by having talks with China to try to boost the stock market. 

A clue to yesterday's comeback from another gap down open was not the headlines on auto tariff delays, but a super strong bond market which protected fund managers via risk parity.  When bonds are falling, stocks are on their own, but when bonds are rising strongly, that is a wind at back of fund managers, as they have protection from their bond proxies and fixed income holdings. 

That is contrary to the 5 minute macro analysts out there who think that a strong bond market signals a weaker economy, and thus a weaker stock market.  It doesn't work like that anymore.  This isn't the 1980s.  With the business cycle all but killed by central banks, the economy is basically in a static state of low growth, so a strong bond market doesn't signal much, except that investors are making money on their bonds which provides them protection and makes them less likely to sell their stocks.