Calm Before The Storm?
For the first time in a month, the mainstream media, Wall Street and the markets per se are not consumed with fears of Trump tariffs and Chinese retaliation. It has been a much needed break because the unfortunate combination of tariffs and retaliation has spawned unprecedented price volatility for the entire Big Four: stocks, bonds, currencies and commodities.
At first blush, it would seem as if the markets most impacted by Chinese retaliation would be soybeans, cattle and hogs. But the fact is, all markets are, and rightfully so, concerned about the potential for a long term trade war with China. And history shows that in a trade war, there are no winners.
The Vanguard Group, founded by Jack Bogle is, according to Wikipedia, an American registered advisor based in Pennsylvania with over $5.1 trillion assets under management. Mr. Bogle has retired but offered the following comments to Market Watch this week. He stated, “ I have never seen a market this volatile to this extent in my career. Now that’s only 66 years, so I shouldn’t make too much about it, but you’re right: I’ve seen two 50 percent declines, I’ve seen a 25 percent decline in one day and I’ve never seen anything like this before.”
Understand, Mr. Bogle is talking about the stock market, not soybeans, cattle or the hog market that has been far more volatile and uncertain than equities. The Trump tariffs and Chinese retaliatory measures have sparked price volatility far more intense with the US ag-markets than with stocks. And that is the absolute truth.
The only reason the uproar over a trade war with China has lacked noise in recent days is because of a statement from Chinese president Xi Jinping. He promised,”economic reforms and lower import tariffs for US goods.” His statement went a long way to soothe fears over the country’s simmering trade standoff with the U.S.
However, the reforms President Xi promised were the same he uttered last November. From CNN.com. “"President Xi's remarks do not represent a dramatic departure from existing Chinese policy, but rather a reiteration of the same themes Xi has promoted throughout his tenure atop China's policy making system," said Chaoping Zhu, global market strategist at JP Morgan Asset Management.
Here is my spin on the US vs. China trade war. The potential for more tariffs and further retaliation continues to pose a risk for the US ag-markets. Nothing much as changed other than the markets have calmed down to some extent. President Xi’s speech was not a major shift in Chinese policy. And their policy is and has always been to retaliate tit-for-tat when hit with tariffs.
Trying to maneuver in the U.S. ag-markets at this point in time is difficult to say the least. There are too many, “what if’s,’ to monitor. But that also reminds me of chapter in my one-of-a-kind book, “Haunted By Markets,” I penned on October 2, 2000. The chapter is entitled, “The Bullish ‘What If’s Are Too Numerous.”
In the final two paragraphs I wrote, “What if, corn and beans have trouble germinating due to low sub-soil levels? What if, the summer is exceptionally hot and dry? What if, another major grain producer has crop problems? What if, the record demand for soybeans and products continues but stocks are on the decline? “
The historical quote associated with that chapter was from Benjamin Franklin who said, “An investment in knowledge pays the best interest.” If you are interested in knowledge and the history of stock, bonds, currencies and commodities go to www.commodityinsite.com There is plenty of history there and if you decide to purchase, “Haunted By Markets” you receive my twice a day newsletter, Commodity Insite at no cost. Heck of a deal!
As for the U.S ag markets. They are stuck in a wide trading range. Rallies fail and so do breaks. Until the growing season ends, the ag-markets will continue to be range bound. Assuming of course, the China vs. US trade does not intensify in the period ahead.
However, here is a headline from Bloomberg News from this morning. “China Says It Has a Detailed Plan to Hit Back at U.S. on Tariffs.” The noise regarding Trump tariffs and Chinese retaliation measures has softened a bit this week. Consequently, most U.S ag-markets this week, “treaded water” amid a lack of volatility. But rest assured, this may be nothing more than the calm before the storm. Only time will tell.