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
A down day. The S&P was down around 10 handles at the open. This was based on a news item that Chinese officials were thinking about halting their purchases of Treasuries. The Chinese hold more than a trillion in Treasuries (2nd most on planet, next to the Fed) so markets rightly took notice. Over the course of the day, investor concern on that front lessened and the tape repaired most of the damage. In the afternoon, another interesting news item hit the tape. Canada is anticipating a US withdrawal from NAFTA. The market didn’t really react to this, which is surprising but the immediate interpretation is that it is expected that as part of Trump’s desire to renegotiate NAFTA, he will withdraw from NAFTA first, giving the US more negotiating leverage to implement it that way he likes.
Or so the logic goes.
Most of us on the Street are free-trade advocates and espouse the benefits of free trade. It is surprising that investors would be so cavalier regarding the destruction of NAFTA. Even if it’s temporary, it’s still an economic hiccup… and then there’s always the chance that it’s not temporary. That’ll throw a lot of business into chaos. There are lots of US, Canadian, and Mexican companies that send products back and forth as part of the total production cycle. This back-and-forth was created and optimized since the late nineties…. Suddenly interrupting that flow is substantial. It’s not just manufacturing either, although that’s obvious for people to understand. Consultants and designers and programmers and other service providers currently conducting business through the borders are going to be affected.
Anywho, my point is that this is messy and I’m surprised that even though we *think* a US withdrawal from NAFTA is just a negotiating technique, it didn’t prompt investors to use caution.
Of course caution hasn’t been at the forefront of investor considerations for a while, so this is just par for the course.
With that understanding in place, today we simply experienced a gentle dip in the morning and investors spent the day buying it up. Capital flow was a little elevated at 108%
The bears have finally won a session in 2018 but this win is pathetic. More significantly, the tone/sentiment of the market is completely unaffected by today’s drop. The bulls remain in charge. Today was a speedbump.
See you tomorrow,