Beyond Santa

Make no mistake — well, let’s say there’s very high odds that — if the tariff increase on Chinese imports occurs as scheduled on December 15th, Christmas will be ruined for anybody counting on a Santa Claus rally in stocks. Therefore, given the amazing propensity for the powers that be to respond to the slightest hint of stock market stress — and the fact that they have to agree with the above — I place high odds on said tariff increase not occurring as scheduled. 

Who knows, maybe (maybe!) we’ll even see a “phase-one” deal with some existing tariff rollback included; now there’s your Santa Claus rally!

Now, being that our investment methodology never finds us resting upon Santa’s lap wishing our hearts’ desires, we have to view the probability of a phase-one (or what have you) trade deal now, 6 months from now, or after next year’s election (all three possibilities have been offered up [for the markets to chew on] over the past week or two) within the context of present general conditions and their trends.

As it stands today, Hedgeye Risk Management’s macro analyst Christian Drake and I happen to be on the same page.

Here’s from his morning note:

“…if you independently implored the “people familiar with the situation” around the veracity of the latest iteration of competing Trade War headlines, you’d be regaled with the same superlatives around faux progress that have characterized this tragicomical surreality all along.

To be sure, there exists some positive signaling value in a lack of further escalation and a roll-back of existing tariffs is tangibly positive.

But the simple reality is that with the net effect still negative, the substantive issues still as intractable as they ever were, the probability of a realized phase two agreement or push towards re-globalization over the next year essentially zero, and the probability of a reversal and re-escalation more than zero, the conditions that have plagued global trade volumes and cratered capex mojo remain more in place than not.”


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