Do we mind that the president of the United States watches the stock market and roots for the bulls?
Does it change our posture toward stocks if he is determined not to let the a averages, especially the Dow, ruin his election chances
It is crazy to believe that stocks are indicators of the health of the nation and therefore validate his presidency?
On a day like Tuesday, when the president delayed some key tariffs on Chinese imports that were supposed to go up Sept. 1, I think we know the answer. If you are bullish, it's terrific, as you own stocks and you made a lot of money Tuesday.
But it's not right if you are bearish. It's not fair that he can make statements that come out just when it looks like the market is rolling over, as it was Tuesday. If you are short stocks he's your worst nightmare, because, unlike you, he can turn on a dime. And, unlike you, he can time his statement to cause a perfect bottom and get the market back on track.
President Donald Trump is a unique president to say the least. Hate him or like him, he is the most stock-sensitive president perhaps in history. I have had the privilege of meeting several presidents and their advisers, and let me just say that even the Republican presidents didn't seem to care and the two Democrats? Sometimes President Bill Clinton was interested. Sometimes he wasn't. But it sure meant nothing to his legacy, at least in his eyes.
President Barack Obama, whom I did not meet? I think he was the polar opposite of Trump. I believe he felt that stocks chiefly benefited rich people, so they weren't worth focusing on. At times, I thought, he did things that he knew would hurt the stock market and he didn't care at all, because he didn't relate the health of the stock market to the health of the nation. It certainly wasn't a referendum on his presidency, unless you felt that if it went down, he showed that he wasn't knuckling under to the rich.
This president watches CNBC among other networks -- I know this because he tweeted my comments out about the strength of our economy -- and he doesn't want the stock market to get crushed, because it's integral to his campaign rhetoric. The president, like the rest of us, likes to win and he always cared about winning Nielsen ratings for the night for "The Apprentice," where I served as a judge several times. It was a highly rated, and therefore, successful show.
I think the big sell-off Monday galled the president. I think it was like the selloff the previous Monday. The press has laid the decline on the strength of the 10-year and the inverted-yield curve.
There are multiple reasons why the yield curve might be inverted -- meaning the short-term rates are larger than the longer-term rates. I would say the chief one would be the decline in world trade.
I get that. We have had tariff wars before, some good some bad, some positively consequential and some horrendously negative. There's a relentless belief among many investors, who happen to either despise Trump or love free and unfettered trade, or both, that our war with China is behind the most recent inversion here in America. They hold that it is the principal cause of the slowdown in the world's commerce, more important than Brexit, more important than stagnant European economies, or more important a collapsing Argentina.
Therefore, when the president stays most of the key 10% tariffs until December, it is a very big deal.
Now let's go over what I believe he is trying to accomplish. First, I think it is a genuine olive branch, something that will give the Chinese some face-saving, so they can buy some much needed pork, because of African swine fever, among other commodities.
Second, it gives the companies that were about to get slapped with the 10% tariffs more of a chance to get out of China and into Vietnam or India or a myriad of other countries that are opening doors to our business.
Third, and perhaps most important from the president's point of view, it gives him cover to get Fed Chief Jay Powell to cut rates more aggressively. Tariffs are inflationary. We just got a consumer price index Tuesday morning that was a little too hot for Powell, a .3 even as real average hourly earnings decreased .1 over the month of July. Ten percent tariffs would have been inherently inflationary. Trump wants to use this delay against Powell to say that there is no real inflation.
All of these combined have led to a vicious short squeeze where everything was hated -- and shorted -- is now loved and everything that was loved is now disliked. I can't say hated because the stocks that are benefiting from this stay are big enough that they can help lift the entire S&P 500.
It could get worse for the bears before it gets better. The so-called invincible Chinese are battling a slowing economy as well as a mess in Hong Kong that won't go away. It may just be a matter of time before the chief executive officer of Hong Kong, Carrie Lam, either steps down and the Peoples Republic of China picks a successor, or she asks the PLA to come to her rescue.
Either situation could be disastrous, because there would be violence, and I can't think of a peaceful ending.
So, rather than fight a two-front war -- a trade and an actual one -- the Chinese give in on and do some buying. There's ample opportunity as there are a bunch of now scheduled calls between both sides.
I know that the hardliner camp is smarting from this one, but the sop of December tariffs if the Chinese don't do anything will make them whole. I believe they expect that the Chinese won't do anything and the tariffs will be put in place to not disturb the Christmas selling season -- more on that later. In the meantime, the infrastructure to compete with China gets another three months' reprieve.
But let's go back to the original premise. The scenario that we were supposed to see Tuesday was an assault of the 10-year toward ever lower rates. The supposition? We would slice through 1.5% on the tenure, an astronomically low number.
Instead, because of the trade representative's note, interest rates actually went up --glory be -- and the algorithmic-oriented traders, which key off the 10-year, had no choice but to buy. That, plus the endless buying in tech that had been prepping for the tariffs, including Apple --more on that later, too -- gave the president what he wanted, a winning session. And it's living proof that all who said an inverted-yield curve rules, got hit by a presidential two-by-four, and, boy, are they smarting.