Okay, here comes the rain again. I’m talking about the speculation and sirens of doom and gloom. Yesterday, the market closed near where it was trading when Reuters reported the “Phase One” trade agreement might happen next year. The fact of the matter is this has always been a reality. Heck, the deal might not happen until 2021 or longer. However, I think it will happen before that other great media fixation: recession.
And that’s the point, as our economy has been tested, and it has passed with flying colors. There was no collapse because of tariffs:
- Jobs surged
- Wages surged
- Homeownership surged
- Stock market surged
Now, don’t get me wrong; the economy is cyclical. One day, it will stumble, but the worst predictions were all wrong, and the same folks that made them seem intent on spreading the cause of concern each day. If factual developments got as much airtime and ink as rumors and hearsay, our economy would be at a place no one could have predicted.
Still, it’s clear that a part of the rally was the assumption “Phase One” would be done before December 15th when new tariffs are supposed to go into effect.
Siding with Hong Kong
After the Senate passed the “Hong Kong Human Rights and Democracy Act,” there was a lot of speculation of intense debate within the White House with the probability Trump wouldn’t sign the bill once it was passed by the House.
Well, last night, word came out that Trump will indeed sign the bill, which China condemned and promised would be met with strong countermeasures to protect its sovereignty and security.
The bill bans exports of things, such as pepper spray, rubber bullets, tear gas, and stun guns. Also, the Secretary of State will now have to certify yearly on the status of Hong Kong’s autonomy need for special U.S. trading considerations.
If you’re not at the table, you’re on the menu.
There is a chance even if there is no deal, President Trump could put those tariffs on hold. However, there is also a chance “Phase One” could be delivered by then. I agree with Trump that China wants a deal, but I suspect they are trying to get a ‘Turkey’ and it’s not even Thanksgiving yet. It’s important to remember this would be “Phase One,” which implies there will be additional agreements, and more time for other parts to be addressed.
Wall Street wants this to be over, which is reasonable, but selling great stocks in a fit of temper isn’t smart and has been very costly.
More Rain Drops
Don’t look now, but the yield on two-and ten-year Treasuries is starting to flatten again. Remember those three scary days in August when the two-year yield was larger than the ten-year yield. Scary times were had, and the economy was on the precipice of falling into an abyss (at some point in the future).
Tightening Spread:
- November 8: 26 basis points (bps)
- November 20: 18 basis points (bps)
Let’s not panic yet. I thought I’d give you a heads up before someone on the news proclaims the end of the world.
Portfolio Approach
We’re sitting at zero cash and pondering closing some positions; however, not to raise money in the model portfolio, but only but to preserve gains, where the value proposition has been changed by the share price appreciation.
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