Trading the Trade War

The trade war ending has already been priced into the market, which is part of why the market has tanked for the last couple days after another round of Trillion dollar Tweets.

When the market sold off Monday I sold off the VIRT position I had recently established.

By close of Monday the stock market made up most of its losses & then today was once again down.

There are lots of obvious first-order impacts of the trade war. A slowing Baidu (BIDU) now trades for about a 15x P/E on fears of slowing down of the Chinese economy & potential capital flight from foreign investors if the trade war accelerates & supply chains move.

Today US federal government bonds & muni bonds are up. However most of the market is down.

There are also defensive sectors which can turn very much non-defensive if market behavior shifts enough. For example, if a market sell off continues it could not only project a recession, but it could cause one. That, in turn, would likely lead to an electoral landslide for the Democrats. That, in turn, would lead to some defensive sectors like healthcare getting dramatically repriced as some portions of the value chain are grown while others are gutted.

My view on the trade war stuff has been to fade consensus. When everything being perfect is priced in, expect turbulence. Whenever it seems all hope is lost with negative headlines everywhere, become a buyer. If the market is down again tomorrow it might be a decent day to nibble.

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