The Zigmont Report (Daily Market Recap for 3/22/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

Trade war?  We all knew, kinda, that Trump’s steel and aluminum tariffs were the opening salvo in the new trade policy of the US.  Today was the US’ second big move and it’s a big play to China.  Tariffs will be levied on 1,300 product categories imported from China.  The dollar value of the tariffs is expected to be about $50 billion… which is about 10% of annual US imports from China.  There’s a delay between today’s announcement and implementation but how and when China responds, is the major concern of markets.

We are observing a high-stakes poker game between the US and China.  If you can tell me how it will play out, I will tell you how to trade through it.

At the moment, nobody knows how it will play out.  I don’t even think the decision-makers in China and the US know how it will play out.

And so, here we are in the markets – starting to worry about growth repercussions.

From a fundamental standpoint, this is a *big* shift in the investing landscape.  What was a risk,

  • Will Trump implement more/new tariffs?

Has become a reality.  Now the question becomes:

  • How will China respond?

For a lot of investors however, this doesn’t even matter.  The dip-buyers are going to make their move tomorrow (I expect).  This news isn’t enough to scare them out of their conditioned behavior.  Look at the last 10 years of conditioning…

Exhibit A

That is powerful.

Anyway, the China tariff news dropped *today.*  We will have a stretch of time before we learn what China does though.  In that period, I expect investors to re-analyze today’s news and explain that it “isn’t as bad” as markets thought today.  That spin was already beginning on CNBC into the close.

I don’t know if that spin is true, but that’s how the bulls will rationalize buying today’s dip tomorrow.  And in the absence of news, which is likely for a while, that will be a narrative that bubbles up.  That narrative will grow stronger if the bulls can really ramp up the tape for a session or two.

My point is that we don’t know the fundamental direction for the market.  China’s response will dictate that.

In the meantime, we’re going to get dueling narratives and the dip-buyers aren’t about to throw in the towel.  I think big swings on speculation are what we’re in for as we wait to hear from China.

See you tomorrow,