Stocks are getting destroyed all over the entire world. Things could turn on a dime but, for the moment and for good reasons investors are selling risk assets. The selling is global, the Volatility Index has spiked. Over the weekend social media was dominated by talk of the crash, the tariffs and the need to get off this path as fast as possible before we do more permanent damage.
As I discussed in real time last week ("Sound the Alarm") there was a single flash point for this crash: the ridiculous, clumsy, catastrophic moment the POTUS held up his chart.
Why was the placard so bad. Well, I wrote about it here and my friend @The-Real-Fly on Twitter rather neatly sums up the point here:
The Rules of the Casino
That about covers it. Trump changed the rules of the international finance casino. In markets of all kinds participants value "stable" over "fair". Meaning they'll deal with slightly unfavourable terms provided they have a) the possibility of an outsized payout and b) A fair game (stable rules, reliably enforced).
Gap is the most diversified seller of basically one product (clothes made from textiles) I've ever seen. 30 counties, 200 businesses. 10% tariffs across the board would have been a hit. Outsized tariffs on every country you buy from makes doing business immediately impossible.
This is already happening. Both because the tariffs are enormous and subject to change companies have already stopped doing anything that triggers tariffs immediately. Shipments have stopped wherever possible. Nike makes >90% of its products in China, Indonesia and Vietnam. Nike's margins were set to drop as much as 5% already. What's that number under the new terms? Hard to say but much, much larger.
Huge but non-specific tariffs change all the rules. Math is useless here. Earnings models mean nothing because we can't realistically arrive at a revenue number without knowing what anything costs. There isn't a fair value if you can't calculate margins.
Governments changing the rules always ends poorly. Circuit breakers don't work. Banning short-selling is futile.
When you change the rules of a casino no one plays. The Casino (our markets) fail. America isn't bigger than that basic human truth.
The President should know this, which isn't the only irony here.
What it Means and What to Do:
You've got your choice of think pieces on a sell off which is become front page newsaround the world. Thank you for choosing mine. This is not a political space. I'm not even here for macroeconomic calls. But I can tell you there won't be a sustainable bid for any stocks until there's a sense of at least stability, if not a trend towards reversing course.
Remember the process of a sell-off:
Step One: Everyone Buys the Dip
Step Two: Denying the sell-off hurts
Step Three: Regret over not selling
Step Four: Anger of the Cause
Step Five: Surrender. Sell it all.
Good news: We're in Step 4, starting Step 5. Bad News: Step 5 can last for a very long time.
In 2008 I made the NY Times for mentioning my two favorite positions were "Cash and Fetal". That was after stocks had fallen 800pts (a lot at the time) the day prior. Lehman had collapsed. There were >5% rallies and crashes on alternating days. It was crazy times. It had to end someday.
And it did. 6 months later with the S&P500 40% lower.
You don't want to be 6 months early buying a lawless market falling apart 5% a day. You can wait.
Every sell-off of significance happens because it's impossible to see a way out of it. What's different this time is it was triggered internally. America is seemingly declaring a trade war on the world. Maybe deals will get struck. Every day it continues the situation gets worse. More orders get delayed. More trust is lost with trading partners. The economic freeze happening right now, in real time, impacting the smallest businesses and most at risk workers, gerts deeper.
Which means stocks keep going down. The Large but Unquantifable Problem is getting worse every day and there are seemingly no rules.
We won't go down in a straight line. Bear markets take money from everyone. These kind of things have always worked themselves out before but that's not really a strong reason to buy stocks. We're killing the global economy on purpose and making enemies worldwide on purpose. That's never happened before.
I won't play games when I don't know the rules. Any trades here at straight-out gambling. Which is fine and can be lucrative. But it's not the same as investing.
I'm not adding anything at any point here. That can and I hope will change at any moment. This market is overdue for vicious, brutal, Bear-smiting rally. Any tangible progress is good ("tangible" meaning a real deal, as opposed to "50 national leaders" calling).
Earnings are about to go much lower across a lot of industries as long as things don't change. People will not believe the warnings that are about to hit the tape when earnings start in a couple weeks. Consumer spending on the margin is hit hard by market losses.
Stay healthy. Stay calm (if outraged). Do less. Be liquid. We will buy stocks again one day. But not this day.
