Tariff Out of the Blue

Well, that was random.  Trump pulled that one out of the rabbit's hat.  With the limited cards that he can play without having to go to Congress, the good ole tariff card was pulled out. 

Are we going back to the 1930s with the tariffs?  No, because back then, trade protectionism was popular.  Now, clearly, with the 15 minute attention span of the public, any negative reaction in the stock market makes it unpopular.  Which means that these tariffs that are popping up left and right will either go away before November 2020, or we will have a Democratic president starting in 2021. 

In either case, the tariffs will be removed.  But here is the thing.  The economy is going downhill over the next 2 years, regardless, tariffs or not.  Tariffs will just give it that little extra push down the hill, so instead of going downhill at 55 mph, it will be 60 mph.  The destination is the same, the speed at which it gets there will be slightly different. 

There is a perfect storm brewing which has little to do with the trade war, and lot more to do with the fading fiscal stimulus, limited monetary easing ammunition, increasing equity supply from big IPOs, and business cycle that is ripe for a down leg.  The Fed going from 2.25% to 0% will not be enough because that will probably only take the 10 year yield down to about 1.5%, which isn't going to be a game changer from the current 2.2%. 

There is no natural demand.  It will be up to governments to run huge budget deficits and have their central banks do full blown QEs to keep this ship afloat.  It will happen of course, we've seen that movie before, but the Fed will probably wait until its too late before they go full blast with the liquidity. 

The best potential opportunity for a trade is to get good news on the trade war, and have the market rally for a couple of weeks.  At that point, you can set up a free fire zone on the short side. 

It looks about as bad as it can get with the news flow.  There is probably an oversold bounce coming next week.