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Trade War Roulette

11-30-2018

Given the potential for market-moving action related to the U.S.-China trade war, and other possible outcomes from the G-20 meeting, I thought today might be rather dull. It turned out it was -- and it wasn't.

On the one hand, the stock market opened a little weaker, but by midday it had clawed its way back to unchanged in rather unremarkable trading. On the other, there was a fair amount of motion away from stocks.

In the afternoon, the market crept upwards as speculators voted optimistically on the potential for trade war de-escalation, closing about 0.75% higher.

Precious, But Unloved Green paper saw a decent-sized move, particularly against the euro, fixed income rallied, and oil fell 1%. Gold was hammered early, as it lost 0.75%, while at the same time silver was hit for over 2%, but by the end of the day the losses were cut to 0.2% and 1%, respectively. There was no news to account for this, other than the dollar strength I mentioned. I think it is just the recent muscle memory where people and algos sell the metals because the market is open.

There was an especially vicious round of selling that took place in the miners, as nearly all of them plunged 3% to 5% almost immediately. More specifically, Kirkland Lake announced really solid news in terms of upping its production estimates, but the stock was briefly 1.5% lower before it flipped around, and Wesdome dropped 4%, but then quickly recovered.

I mention those two because they have done nothing but execute brilliantly, they are not expensive based on what they may earn next year, and yet they have still been penalized, although not nearly as bad as some others that haven't been quite so fortunate. (It would be hard to perform better than these two companies have, in any case.)

Can't Wait to Turn the Page I don't think on most days, for most mining companies, the weakness means anything, it is just indiscriminate puking on the part of the algos, tax-loss selling, and maybe some short selling. Perhaps we will have to deal with this for a few more weeks until the year ends, but I think 2019 promises to be a year where a lot of the insanity that we have seen gets flipped around. I don't know exactly when we will start to see signs of that change, but it's coming, and I don't think it will be too long now.

Positions in stocks mentioned: long KL, long WDOFF.