Trade War Becomes Currency War

Overnight, China allowed its currency to decline to its lowest value versus the US Dollar in more than a decade.   The move is seen as Beijing hitting back, but it can also be read as a desperate move. 

The action makes China exports cheaper (which actual mitigates price increases for American consumers – the big hit to stocks underscores the reality that American businesses have to absorb additional costs and large multinational companies could see slower sales in China and other emerging markets), but it also could spur a massive capital flight.

There is also the issue of uncertainty. 

The battle is joined, and each salvo makes it more difficult to reach a resolution.  This is the fight America should have had a long time ago, but it didn’t, as corporate profits came before jobs and national security.  I think the public is behind this fight, which is important because China can ignore its public for a long time, but not forever. 

I think the move from China will put the Fed and the administration on the same page, even if temporarily.  This is a clear currency warfare, and Jay Powell has to step in with the unlimited resources of the Federal Reserve.

Meanwhile, major indices closed at their respective 50-day moving averages, which puts the 200-day moving averages into play.  With the markets gapping down so significantly, those 50-day support numbers (see table) become upside resistance points and potential buy triggers.

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Portfolio

We took profits on a Technology stock on Friday.  We are lowering Technology to a 2 weight and Cash to 3, as everyone should have a fair amount of cash. 

Today’s Session

This kind of panic open, coupled with so many unknowns, is creating amazing opportunities.  But when to enter is the big question.  Toss in the notion that a tweet could change everything in a blink of an eye means watching closely.