Which is more toxic for the market, still higher tariffs on Chinese goods or a Fed that keeps raising and raising and raising?
It's a tough call because, at this point both are just horrendous for stocks and we have to recognize that we are no longer capable of talking about a lesser of two evils situation.
Today, for example, the market was cruising along just fine and dandy until the Trump administration let it be known that it is going to put tariffs on all Chinese products if the next round of talks between President Trump and President Xi bring no resolution.
We then saw a horrific plunge that took down pretty much everything. It makes a ton of sense that there be a retreat like that because I think the market is beginning to respect that President Trump will not let the Dow Jones Averages interfere with his desire to prosecute a cold war on all fronts against the Chinese in the same way we spent decades trying and ultimately defeating the Soviet Union. The tariffs are a small part of Trump's gambit of blunting the Chinese from trying to steal our technology and ultimately become stronger than our nation militarily, a fear that seems to be pervasive in the White House.
But how about the second threat to the market, the Fed? This morning we got some pretty tame personal income and consumption numbers which brought a sigh of relief from investors who fear the Fed will just keep raising rates once this year and three next year. The figures were not too hot and not too cold, yes, the fabled Goldilocks scenario, which investors thought could soothe the hawks on the Fed including Cleveland Fed President Loretta Mester. If you can remember back to Friday, Mester kiboshed a nascent rally with some tough and, I think, unnecessary talk about how wild swings in the stock market aren't a deterrent to raising rates.
I believe this morning's figures will not change the stern nature of the Fed no more than anything about tariffs from any industry in this country can change President Trump's mind about tariffs.
The ironic thing is how stupid this market can be. For much of the day the retailers roared higher on a belief that the personal income and consumption figures coupled with continued weakness from the stock of Amazon (AMZN) boded well for lower rates and a better holiday season. But then we learned of new tariffs which would certainly hurt the retailers so that group took a header making everyone who bought them look pretty stupid.
In fact, every attempt to bottom fish in this market has made people look stupid with the exception of those who bought Red Hat (RHT) during Friday's horrendous session. There's no respite for the weary buyers and nothing but nirvana for the sellers.
There is no lesser of two evils here. The Fed's insistence on raising rates regardless of the data or the stock market makes for a precipitous course that can't be corrected. The president's intransigence on tariffs makes it difficult to think that we will have any help from worldwide growth. If anything, higher rates AND higher tariffs are setting us up for a very difficult end of the year - and 2019 - if something isn't done to ameliorate these two different houses of pain.
Sure we had a scattering of positive sectors. The stocks of companies that do well in a recession tried to make a stand before being overwhelmed by sellers as did the banks, which shouldn't have been up in the first place.
But the overall sense of this market is that there's no place to hide, particularly in the now dreaded FANG or FAANG, however you want to spell it now that Amazon and Alphabet disappointed. I want to be more constructive. I want to be less hardline but unless someone from the Fed takes notice of the rot underneath this economy and someone from the White House recognizes that your goal with China is to get them to play fair and not to defeat them in every corner of the Earth, then lower prices just make too much sense. Unless the Fed or the president recognize the damage they are inflicting on their own constituencies there's no other antidote to these twin toxic brews.