Tuesday Aug 27 2019
The Tariff War is not Working
When President Trump casually announced that tariff trade wars were easy to win, we warned that would not be the case. After a stunning two year rally, the markets are now mired in verbal insults , mostly from our side. This morning China threatens to make good on its promise to retaliate for higher tariffs imposed by the United States. Not surprisingly the DJIA is down about 250 points.
After bragging about his stock market success, lately the President has been using what one observer calls the Trump put. A put is a hedge on a move down in a security. When we have had days like this, a sudden drop in equity prices, Trump has followed up by relaxing the latest tariff threat. And so far the markets have accommodated this ‘talking up the trade deal.’ But as it becomes more and more obvious that China will wait Trump out until the election, surely lower prices are in store.
Gold and silver are rallying which is not a particularly good sign for the US Dollar or equity markets. But that is in line with our current predictions.
Trading at 26,008, the DJIA has not been able to surmount 26,400. At this point a move back tot eh late May low of 24,800 looks like a reality.
And speaking of lower prices, crude oil dropped 2.89% this morning on the China trade threat. Clearly the markets see trade threats as eventually slowing the world economy, as if the rest of the world were not slow enough already. That one-day drop is a good example of just how dangerous this kind of brinksmanship can be. Do not be fooled by those citing lower gasoline prices. Lower oil prices are signaling a much slower economy.
Halliburton sags to $18.25 and Apache looks like it is headed below $20, now trading at $21.15.
Social mood world-wide and in the US is particularly negative. Inflation estimates for Venezuela are now in the million percent category. The Chicago Teachers Union just visited that economic train wreck. The Union noted Maduro had not closed any schools, never mind there is nothing to eat. Protests continue in Moscow and Hong Kong. Italy had another government collapse but what else is new in Rome?
With the elections a long fourteen months away, look for more ‘sudden surprises. ‘
Professor Elam 