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Trade War Rhetoric Intensifies

07-11-2018

Trump's new proposal to put tariffs on another $200 billion worth of Chinese goods caused the stock market to lose about 0.75% through midday, in what I would describe as another macho performance of tuning out bad news. The present QE-inspired bull market has gone on so long and ignored so many negatives that it seems people are completely inured to them. To me that means when the market finally decides to break, it will do so aggressively.

The Fruit of Their Labors Exactly what is going to be the final snowflake to hit the slope and precipitate the avalanche I can't say, but I can't imagine the Chinese don't have a game plan and expect they will do things that will be disruptive to American businesses, with Apple as potentially the most vulnerable. Obviously, if Apple and its suppliers were tripped up that would cause a lot of indigestion for the tape and might be enough to tip it over finally, but that is just one of many scenarios I could conjure up, even though nothing has mattered much thus far. My intention is to sprinkle in a few shorts and puts if it looks like the downside is gaining traction, especially next week as earnings season ramps up and stocks decline in the wake of the news.

Turning back to the action, in the afternoon the market traded sort of sideways and by day's end the indices remained around 0.75% lower.

Away from stocks, green paper was stronger once again as the yen continues its descent. Of course, the Chinese yuan has been weaker, too, and that is another potential wild card, although I have no idea how to handicap it. Oil lost 4%, fixed income was higher, and the metals were thumped, with silver losing 1.5% and gold 1%. The miners took it on the chin today as they were unable to ignore weak gold action any longer after bucking that trend for so long.

Positions in stocks mentioned: short AAPL.