The president doesn't want the stock market to go down. He wants it higher. He knew that things were looking bad after Friday's selloff, and he decided to say something positive about the Chinese negotiations.
Did they call? Did he call them? Was there even a call?
On a day when the market flew because President Donald Trump was able to say that the Chinese want to get back to the table -- because of his harsh stance on Friday of boosting tariffs and demanding American companies leave the PRC -- we have to reassess what's happening between the two countries.
First, we know that the PRC has officially denied that anyone official called Trump. Trump, on the other hand, said he got two calls, because the Chinese are desperate and they know he has the upper hand.
The intelligentsia immediately declared Trump a liar and trusted the PRC instead. But there was commentary from a vice premier of China that he would welcome some sort of resolution, so it's difficult for me to conclude anything other than the Chinese really are trying to figure out who Trump really is, other than the most unpredictable leader in the history of the West.
Maybe their country is being hurt by the tariffs and they need a deal. Maybe they just want things to calm down.
Here's what really matters to you, if you are trying to make money with your portfolio rather than let the money stagnate at less than 2% with the bank.
You need to get your head around the notion that the president doesn't want the market to crash, so it isn't worth selling everything that was Friday's cauldron. If you want to take off some money now that the market is healing, sure, be my guest.
My suggestion, though is to separate, in an unemotional way, what's really happening here from what's being reported.
First, a quick deal is highly unlikely as long as Trump is riding high in the polls and feeling that the American people back his tough stance against China. Given that there really hasn't been any price increases from the tariffs to speak of and given that he keeps talking about how the tariffs will raise $100 billion in a year --something that was scoffed at by the media but seems to be panning out -- he could be on to something.
Second, the president's real goal isn't to get a deal for the Chinese to buy our agricultural foodstuffs. We are long past that. He wants to get American companies to leave China no matter what. This on-again-off-again deal making is sure to prolong things so that U.S. companies have more time to get up and leave.
The bluster always contains the same rhetoric about our companies leaving China. The president sincerely believes that if our companies leave China, then there could be a serious recession in China and that will cause a chance of stance and give the U.S. the upper hand.
Again, who knows?
If the Chinese are playing the long game, the president figures, then they better realize that if any Democrat besides Joe Biden wins, it could be even worse for China. It may be an exaggeration when Trump says they are losing billions of dollars and losing millions of jobs, but he always likes to look like a winner and this kind of talk resonates with those who love him.
Third, the president is willing to tweet harsh words and risk a big decline in the stock market. But if it is too big a decline, you can count on him to say something positive. We should have learned by now that's how he rolls. This is vital though: He cares more about beating the Chinese. He's thinking very zero-sum here, more so than keeping the stock market higher. That's because initially he viewed the Dow Jones industrial average as the referendum on his presidency, but now that he has good poll numbers, he's jettisoned that view.
He still likes to talk about how the market has done from the day he was elected. However, that's not the emphasis anymore. He's too angry at the Chinese for not making those initial agricultural buys to let the stock market get in the way of his retribution for something he regards as so brazen an offence.
Fourth, the president's advisers are wise enough to know that companies that stay in China or regard it as important, are going to get lower valuations in the stock market than those that don't. Those that depend on China for sales are going to have to pay the price here. He doesn't mind if their stocks go down.
Trump accepts that some are going to move to the nearest country, Vietnam, although he is wary of transshipments from China, so American companies have to be careful that they aren't paying China for what they sell. He would prefer Indonesia or Malaysia as places to move to, although, of course, he'd like companies to come home to America. He is conscious that it's easier to move a toy factory than a car factory or a semiconductor assembly line. Nevertheless, he expects that companies that depend on China to do business will see their earnings cut and their stocks will go down. Yes, he is that sophisticated about these matters even as the intelligentsia doubts every bit of what I just said.
My reaction: Go do some homework, doofuses, and you will find out what I know. The president has total contempt for the companies that haven't cleared out yet.
Finally, and this is a toughie: The manufacturing economy is hurting from the tariffs. There is a visible slowdown in manufacturing as measured by rail car loadings, lumber and plastic pricing, auto sales and high-end home purchases among other declines.
That means if you do have exposure to a lot of industrial stocks, I think you need to do some switching, if you can. It would be terrific if you sold some of these stocks and bought the stocks of companies that have higher yields that are sustainable, because they have good balance sheets.
That means buying Verizon (VZ) with a 4.2% yield, but not buying AT&T (T) with an almost 6% yield, because the balance sheet just isn't good enough. If you are just in an index fund, I don't see that much to do. I think you have to ride things out, expecting more volatility even as it can leave you bruised. If you wanted to get your cash position to at least 10%, or if you are on margin, I think you need to use these up days to reposition. This is going to be a long slog. China may want to do a deal, or it may not, but from what I can tell, the president thinks the longer he holds out for a deal, the better. This means that we haven't seen the last of these sell-offs, so get used to them.