5/31/2019 Weekly Update: The Trade Wars Continue
by Zach Marsh on Jun 7, 2019
S&P 500 -2.62%
10 Year Treasury +1.4%
Weekly Update: The Trade Wars Continue
I’ve often felt that people never really surprise us. Sure, they frequently fail to behave in a manner that we don’t expect, but that is not because they are acting in a manner untrue to their nature, rather it is our own, internal, expectations or desires that are causing surprise or disbelief.
So, back at the beginning of this month, when Trump reignited the trade war with China, adding additional tariffs, the market reacted with shock and began a month long sell-off. Similarly, when Trump further expanded the trade war by applying tariffs on Mexican imports, with the threat of a predetermined escalation plan, the market again reacted poorly. But, at this stage, should we really be all that surprised?
I’m reminded of the fable of the Scorpion and the Frog. The story goes like this: a scorpion asks a frog to carry him across the river. The frog asks the scorpion, “Why would I carry you across, you’ll only sting me?” The scorpion responds, “I promise I won’t sting you, after all you are keeping me safe from the water.” The frog, applying logic, agrees that it wouldn’t be in the scorpion’s interest to sting him and agrees to allow the scorpion to ride on his back. When they reach the halfway point the scorpion stings the frog causing the frog to die and the scorpion to drown. However, prior to dying the frog asks the scorpion, “But why did you sting me?” The scorpion responded, “You knew I was a scorpion.”
At this stage, President Trump has shown us his nature, maybe we are the fools to believe that he will act differently. So, the question left to answer then is this: can the market continue to rise in spite of the actions of the government? Or, are we late in the cycle and only hoping not to be left holding the bag when the market makes a real concerted sell-off? If that is the case, then the only rational decision is to hold your nose and allocate a substantial portion to the safety of Treasury bonds.
Thanks for reading,
Zach and Dave
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