If one perused the mainstream business/financial media sources for headlines on the concluding G-20 summit looking for details, one thing is pretty hard to miss: there really aren’t many.
All you’ll find is something akin to “a cease fire” followed with some rumination about how both sides (U.S./China) seemed to work out some form of detente on continued open-ended political issues.
As far as trade? Well, it seems we are still in the exact same space we were before the meeting. In other words: nothing’s really changed.
As a matter of fact, if one wants to throw up an analogy of precisely where we are using one of the supposed agreements such as China’s assertion of a U.S. respecting of its claim on Taiwan. e.g., One-China Policy. It would seem a fitting description for what is taking place would be “round one” has concluded in a scheduled 10 round match. i.e. both have only gone to their respective corners to await the next “bell.”
Or said differently: they both still want a piece of each-other – literally.
This so-called “truce” on tariffs seems to look an awful lot like what we see (and will continue to see) when a U.S. warship navigates its way through what both sides differ on for interpretation as “international waters” via the Taiwan Strait. i.e., full of fraught and danger where the slightest miscalculation or unintended misstep that has even the slightest intonation of something akin to a “bell” could have immediate global consequences.
One of the curious aspects of this so-called “truce” is just how little proclamations of something along the lines of “A great deal!” we’re hearing. Actually, the silence is deafening, which should be screaming warnings to anyone trying to pay attention. For if there was really something to celebrate, even if it was only superficial in nature. Is there any doubt the U.S. administration would be hell-bent on declaring it?
Yes, there are some reports that the President has said a few things aboard AF-One after, but again, there has been very little other than that.
Same goes for China. Yes, a few statements, but very little substance.
What has also caught my attention is that it appeared as if there was some self-imposed moratorium on what would be said, until it was learned what China would report first.
Again, China’s first reporting was rather sparse on details and even more so on outlook. The U.S. seemed even more so with no incessant “Great, greatest, greatest ever…” being the clues for such a conclusion.
This G-20 dinner had all the appearances of some pre-divorce party where everyone’s happy to finally get the chance to openly air their dirty laundry face-to-face. But instead of receiving a check for the dinner bill they’re handed a statement for initial claims or pay-outs that will now be needed to finalize it all. See the movie “War of the Roses” for possible further insight.
Then we have the conclusions of “The Fed. blinked!” when it comes to the recent market surge that took place before the weekend.
When it comes to this conclusion, as I iterated prior, just because pundits were trampling over their own mothers as to get to any keyboard, microphone or camera to pontificate precisely the Fed’s meaning and intent via the Chair’s latest speech doesn’t mean they’re conclusions are correct. Maybe, they too are misplaced.
I am fully aware of the analysis that’s been touted when it comes to “this phrase vs that phrase” type argument. And yes, I agree many of them have merit.
However, with that said, here’s why my reasoning when it comes to whether they “blinked” or not. I still remain firmly in the “did not” camp.
If one remembers (or cares to might be a better question) back in January the “markets” supposedly knew everything they needed to know about Fed. interest rate intention and had priced it in.
Then we had an outgoing and new incoming Chair resolution happen in February. Again, everything about all of it was supposedly known and “priced in.”
That is, everything except what I’ve stated is the only thing that mattered: The reduction of the Balance Sheet.
The reason why I’m making this assertion, and why it matters more than anything else is that, when the “markets” could no longer guess or infer that that Fed. may not be as committed to it as they stated they were. And had actual proof that it was happening the result was what we now call the “February Scare.”
My conjecture, of course, but let me add a bit more to help bolster my case.
I have been consistent in my contention that the reason for the out-of-the-blue market reaction that happened in February was in direct correlation to the “market” getting its first true confirmation that indeed QT (quantitative tightening) had begun.
This was a “wait till you see the white’s of their eyes” moment, or set up for the “markets.” After all – they (Fed.) hemmed-and-hawed for years but never really pulled the trigger. (hint: remember “reinvestment?”) So why alter one’s strategy until confirmation. February did just that.
If one looks at any chart of the “markets” from that point on it’s clear to see the market mood remained lackluster as the new Chair reiterated for months that the “unwind” was on schedule and being followed as was laid out.
Then in-and-around late spring there were noticeable reports emerging (such as this one) that the Fed. may actually be changing its mind on its QT schedule.
Then, just like magic, the markets were, once again, off-to-the-races.
That is until everything that was supposedly “baked in” via fantasy-land type rationales i.e., interest rate hikes are good, trade wars are good, tariffs are good, et cetera, et cetera, met the cold reality that the Fed. seemed undaunted in allowing the unwind process to go into hyper-drive at a now $50Billion per month for the foreseeable future.
And yes, stuff like “hikes, trade war, and tariffs” were actually given as “nothing to fear” rationale across many business/financial media broadcast set. All with straight-faces. For as was always the go-to touchstone of their brilliance: “Just look at these markets!” was all the proof that was needed.
That is – until October. Now it seems all that “nothing to fear” suddenly became “all hope is lost!” That is – unless the Fed. blinks.
It is here where the true problem now arrises:
Did they blink? Or, just wink?
The resulting “market” reaction as displayed on Thursday and Friday seems to show it was nothing more that a “wink” as to maybe allow some form of front-running narrative to take hold of and help prop the markets up from a bad month-end scenario while also helping the mood going into the G-20.
Did the Fed. (as in Mr. Powell’s latest speech) do this intentionally to placate the markets or, was this just a hopeful front-running fueled pursuit put on by Wall Street using the old “a dove flapped its wings – which means buy everything!” narrative to get shorts to cover and close out from red to green?
Count me firmly in the Wall Street shenanigans camp, rather than anything substantive out of the Mr. Powell.
With such a muted response for follow through on Friday after Thursday’s so-called “all clear!” given by many across the media, along with such a restrained response via an administration that is one of the most ardent self-promoters for arguing “winning!” at the-drop-of-a-hat. And even that is not a requisite. I’m concluding that the preponderance of evidence still requires the caution levels to be set at 11.
If we suddenly rocket up from here into year end so be it. However, just some sudden pop back to about 2800 is far short of anything I would describe as “all clear.” All that would represent is a getting back to the top end of what I call the “manic – depressive zone.” i.e., between 2600 and 2800 respectively.
The issue now is that if the markets can only get back to that area (i.e., 2800) and proceed no further. Once again the focus will revert back to all the “unresolved” issues and we may deflate back, once again, sinking towards the lower end (i.e. 2600). Then of course the question , once again, arises:
Does it hold, once again? For December is also known for something else…
It’s the month where winter officially begins.
© 2018 Mark St.Cyr