‘Here We Go Again’ – might as well be the famous old tune applicable to this market; because as the lyrics suggested: “I’ll throw all your old stuff away” (China); “I’ll clear you out of my head” (retreat to domestic stuff); “I’ll tell everyone that we’re through” (though we’re really not; hence no trade war when all is sorted out); and that’s “Cause I’m so much better without you” (and of course we’re not and they’re not; just that after what was done yesterday, by Trump and especially Kudlow; why am I not that surprised at tonight’s news).
That tune continued with a: “Cause I’ll break down every time you come around” line, which better describes how previous Administrations have responded to hardball plays whenever they briefly attempted protecting American industry. Trump has sworn he’s not going to be a pushover.
And therein likes the rub. Yesterday I bemoaned the Kudlow commentary (despite agreeing with it) regarding this President being a ‘free trader at heart’, to use Larry’s words. My concern, especially given the S&P’s very dramatic down-and-then-up turnaround (which allowed follow-through in Thursday’s market as expected), was that it would ’embolden’ a tougher line with China, because of the belief there rally wouldn’t be a trade war.
Well the way TO get a trade war is for the officials to keep saying there’s not going to be one; the market rallies; Boeing leads; Washington again isn’t taken seriously; and today’s China Daily (official newspaper).. guess what.. they headlined exactly what I said last night: however putting it the context of the United States ‘blinking’ in the standoff on trade. They even singled out Kudlow (I just knew that would result in trouble as I have few problems with his perspective other than being a rampant Keynesian we all know; but you just can’t refer to barely begun negotiations with what in this case was interpreted as a capitulation by the Chinese). It’s part of a limitation of what an ‘official’ can say; not an observer on CNBC. Trump himself went too far by saying in advance ‘we’ll have a beautiful NAFTA deal; close to it; and oh if we don’t get it then we’ll cancel NAFTA.’ But for now this is mostly about China; and (not to be overlooked) the EU role.