We spent a decent amount of time this morning writing our normal piece. In it, we touched-on yesterday’s consumer confidence data…and what it might be telling us about the U.S. consumer. We also talk about the crash in Bitcoin (after a rumor made the rounds that China was close to introducing its own digital currency). We then dicussed President Trump’s more hawkish comments at the UN yesterday morning. Finally, we take a victory lap on our bearish call on NFLX…which has fallen 25% since we turned negative on the stock over the summer.
However, we then decided to scrap all of what we have written. In our opinion, all anyone really needs to know this morning is that the impeachment investigation that Speaker Pelosi initiated yesterday means that China has A LOT more incentive to delay play the “four corners” strategy….and stall until after the election. The odds China would give-up much on the issues of intellectual property or “verification” was always in the very, very, very long shot; so the best we could have hoped for before the election has been an minor “interim” deal. We might still get something like that, but it will now be even smaller than it would have been given the new political developments of the past week.
Why in the world would China feel compelled to negotiate with the U.S. in any meaningful manner with the President Trump’s re-election becoming more in question? It doesn’t matter whether or not this “impeachment investigation” actually leads to a serious attempt to remove the President...like it did under President Clinton. (If it DOES actually become a full impeachment process, the odds that China will negotiate in a meaningful way will fall even further.) Unlike Presidents Nixon and Clinton, this situation is playing out during the first administration…and therefore should definitely have an impact on the Mr. Trumps chances of getting re-elected.
Since the trade war has been the number one issue to move markets all year, this development is all we really need to talk about this morning. In our opinion, yesterday’s announcement about an impeachment investigation means the odds that we’ll get a trade deal and the odds that President Trump will be re-elected have both fallen in a visible manner. This does NOT mean that we definitely won’t get a trade deal…or that President Trump will definitely lose in 2020. However, since the odds have fallen that either of these things will take place, the market needs to re-price itself to these “new odds.”
Yes, this entire thing could blow up in the Democrats’ faces at some point down the road…and President Trump could come out of it stronger than he has ever been. However, for now, we believe investors have to start thinking about what the investment landscape will look like if the trade war continues to drag-on…and somebody like Elizabeth Warren is our next president. (Think about what Leon Cooperman said last week about a Warren or Sanders presidency.)
We’ll finish by saying that we STRONGLY believe that investors should not take solace in the thought that a Democratic president will end the economic cold war with China. Leaders from both sides of the aisle have said publicly that something needs to be done about China…and this is a “war” that will be with us for a very long time…no matter who is president.
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Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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