‘Run-Bull, Run’

“It’s certainly run-bull run at this point for the global markets”, somebody called Terri Spath told Bloomberg TV on Monday, as US equities raced to fresh highs on the back of what was predictably described as “trade optimism”.

In addition to her duties as CIO of Sierra Mutual Funds, Spath is also a “money maker, picture taker and fun aunt”, according to her Twitter profile.

Levity aside, Terri is right – it’s “run-bull run at this point”, and you can cite any number of explanations from the technical (rapidly decaying hedges that need to be “puked”) to the generic (“trade optimism”) to the old standby (central bank accommodation). Whatever the case, global stocks are at records and they’re overbought – again.

I’m not going to throw any cold water on this – not right now, anyway. The US data has improved, the Fed’s bar to start hiking is impossibly high and for the time being, tariff escalations are off the table.

While there’s no denying the path of least resistance is higher in the near-term, it’s worth noting that the comments out of the Trump administration on Monday regarding the trade deal were completely asinine. The president, for example, said the deal will be finalized over the next two weeks. But it was just Sunday morning when Bob Lighthizer told “Face The Nation” that the deal is “totally done, absolutely”.

Normally, you could give a president and his advisors the benefit of the doubt when it comes to sending conflicting signals on complex issues, but, as ever, this administration contradicts itself so blatantly that you have to wonder how it’s even possible. When you say a trade deal is “totally done, absolutely”, you’ve left no room for equivocation. I don’t know about anybody else, but “we’ll finalize it over the next two weeks” leaves something to be desired in the context of Lighthizer’s remarks, which amounted to “signed, sealed and delivered”.

And look, this isn’t trivial stuff. I’m not just pounding the keys to hear myself type. There’s absolutely no guarantee that Trump won’t lose patience with some aspect of the fledgling agreement and scrap the whole thing at the last minute. Indeed, he did just that in May. Remember, the two sides were purportedly within days of an actual deal (i.e., a comprehensive agreement) in late April.

Guess where stocks were at the time? They were up 17% from the first of the year. As of Monday’s close, they are up 17% since the lows hit after the selloff catalyzed by Trump’s decision to call everything off on May 5.

Meanwhile, Larry Kudlow is just a pull-string doll at this point. In remarks to reporters at the White House Monday, he regurgitated nebulous talking points that were, at best, wholly indistinguishable from previous remarks. At worst, he said things that were maddeningly tautological. For instance, Larry said a “Phase Two” deal will depend on the success of “Phase One”, which is not just a little bit like saying that getting to the second set of stairs in a three-story house depends on making it up the first set, but precisely like that. Or like any endeavor that demands a first obstacle be cleared before grappling with a second.

He also insisted that currency “manipulation” is a key part of the deal, but, as ever, it’s important to note that arguably the key reason why the yuan has depreciated since the summer of 2018 is down to the trade conflict. In fact, if you pan out, the yuan is basically flat since the beginning of Trump’s term.

Every major slide since mid-2018 has accompanied a trade escalation, and while it is unquestionably the case that the PBoC countenanced depreciation in order to preemptively cushion the blow from the tariffs, the chicken-egg dynamic there is impossible to sort out. Did the yuan fall because the market was expecting easier monetary policy and a decelerating economy thanks to the tariffs? Or did the PBoC deliberately let the yuan fall, thereby prompting the market to start pressuring it lower still?

One thing we know for sure is that in August of this year and last, the PBoC went to great lengths to keep the currency from going into free fall – albeit after letting it slide sharply in order to send a message to Washington.

Finally, Kudlow insisted that the impeachment proceedings aren’t affecting Trump’s “well-oiled machine” (as the president famously referred to his notoriously dysfunctional White House).

“Our policy machinery is going full speed ahead”, Kudlow said.

It sure is, Larry. It sure is….