The Great Trade War of the 21st Century is just about the only thing that matters to the markets right now. And even though I always try to look past the headlines (and try to anticipate them before they happen), the fact is that the market is right to be worried about all this trade war escalation.
Trump’s new tariffs on Mexico are not just about Mexico, they underscore just how aggressive Trump is getting with tariffs, which are something we haven’t had to deal with in any meaningful way in decades. Just a days ago, the markets all sighed in relief when it looked like Trump was making a deal with Mexico and Canada as a ploy to get China to get a deal done. Whiplash policy moves makes for more whipsaw stock markets.
Meanwhile, even though most stocks have pulled back 10-20% in the last few weeks, the S&P 500 is still within 6% or so of its all time highs, set just a few weeks ago. The whoosh down has made many stocks oversold and opens up some opportunities to scale into some of our favorite names at lower prices. Then again, I’m just not as confident that the Bubble-Blowing Bull Market that we’d been riding for the last decade is still fully in tact.
When Obama or Bush and even for the first couple years of Trump’s administration, I’d been rightly operating under the assumption that most every policy, tax change, subsidies and other action from the Republican Democrat Regime was all about doing whatever their corporate masters told them was best. Obamacare (Obama), the bank and car company bailouts (Bush and Obama), ethanol subsidies (Bush), prescription drug coverage expansion (Bush), the tax overhaul (Bush, Obama, Trump) were all bills that were proposed by, written by and profiteered upon by the corporate industrial complex.
We can’t say the same thing about The Great Trade War of the 21st Century. While the outcome and long-term ramifications of the trade war, especially with China, could turn out to be terrific for corporate profits and the US economy for the long run, it’s likely to take at least a few more months to get a deal done. And in the meantime, as I’ve been saying for months now, there are multi-trillion dollar supply chain and investment decisions being made based on exactly these discussions. The people in charge of these global companies are feeling on the defensive and feeling increasingly more defensive all the time now.
So here’s the playbook. I’m going to hold onto most of our longs as they are, maybe trimming a little bit of some of them just to raise some more cash. I will continue to opportunistically scale into some more of my favorite positions as they get sold off with the broader markets, as you’ve seen me do but not aggressively. And I’m going to nibble a few puts and focus more on cash/defense than usual too.
For now, I’m going to rollover about 1/2 of the SPY and IWM puts that bought the other day by selling 1/2 of them and taking most of those proceeds to buy some more SPY and IWM puts dated out into August with strike prices about 8-10% out of the money. I’m also nibbling a few puts on ZEN and SPLK, dated out to August, about 10% out of the money. That will cut into some of my gains, if they don’t crash, but I just want some protection. (If you don’t understand any of what I just said, then don’t try to trade options and perhaps just focus on raising a little cash by trimming some of your positions a little more.)
Trading and investing is hard and the last year has been wildly volatile. And that kind of historic volatility, coming after years of a mostly Steady Betty Bubble-Blowing Bull Market, can also be indicative of longer-term toppish kind of action, as the volatility can feed upon itself to becoming a Dislocating Market and a vicious cycle develops. I’m not predicting a stock market crash here or anything, but I am predicting that this is a good time to be defensive.
PS. Dell and PANW both got hit after reporting earnings this week. PANW has not been a good stock this year, but I continue to think it’s a core holding. We’d trimmed Dell repeatedly after it rally nearly 75% after we bought it and I did indeed nibble a little bit of DELL today but just a tiny bit.
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