Monday Market Mayhem – Stocks Continue Lower


Greetings from Havana!

I'm over in Cuba checking out this Communism thing as, clearly, Capitalism just isn't cutting it anymore and we'll need a better alternative for 2020.

Before 1959, Cuba was run by a US-backed regime which was ousted by Fidel Castro, who allied himself with the Soviet Union and, ever since then, Cuba has been BAD, like Iran is BAD but for different reasons that we had to make up since they overthrew a totally different US puppet Government.  That makes it a bit confusing as to why we're supposed to hate everyone but it seems hate is becoming a huge US export lately – there seems to be plenty for everybody.

President Obama and Raul Castro attempted to begin normalizing relations in 2008 and between 2009 and 2013 the number of self-employed workers in Cuba tripled thanks to reforms including decentralizing the agricultural sector, relaxing restrictions on small businesses, liberalizing real estate markets, easing Cubans’ ability to obtain permission to travel abroad, and expanding access to consumer goods.   While the state still controls 70% of the island's $92Bn economy, they were making good progress until Trump rolled it all back – now it's unclear how Cuba is doing – so I think it's worth a look.

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Cuba's economy is 20 times bigger than Puerto Rico and they mostly trade with countries in South and Central America – not Russia – not at all.  Canada is 10% of Cuba's trade but it's dominated by Venezuela, more than 1/3 of the total and Venezuela's a mess and that hurts Cuba.

The market is still hurting this morning as the indexes look to open a little lower but off the lows as Mexico has indicated it will try to work with Trump to find some compromises to his demands for immigration to avoid the tariffs the President has threatened to impose. 

If anything, China has firmed up their resistance to Trump's trade tactics over the weekend, releasing a "White Paper" that concludes trade problems were started by the US and the US has been "unreliable" in negotiations.  During the consultations, China has overcome many difficulties and put forward pragmatic solutions. However, the U.S. has backtracked, and when you give them an inch, they want a yard,” China's Vice Commerce Minister Wang said.

Increasingly, officials in Beijing talk of bracing for a dispute that will last decades.

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Tragically,we don't have decades according to Morgan Stanley, who see a Global Recession in just 3 quarters if Trump carries through with his plan to escalate the trade by adding Mexico or even following through with his planned tariff increases on Chinese goods.  From what I'm seeing in the news and on my travels, the real damage Trump is causing to the US is he's forcing the rest of the World to move on without us as we seem less and less of a reliable partner, not just to China, but to our closest allies as well.

Meanwhile, the week is off to a bad start as the S&P Futures (/ES) are indicating 2,746, not very far above our 5% line at 2,730 but at least we should bounce there and the fall was all the way from 2,950 so 220 points would give us a 45-point bounce to 2,775 so we'll need to take that line back quickly if this weeek is going to see a recovery and another 45 points from there to 2,820 before we even begin to feel like we're back on a bullish track.

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This is the same chart with the same lines we've been using all year so nothing surprising is going on – we're simply trading within our expected range.  What was unexpected was when we popped over it into the end of April but now we're settling back down and most likely we'll fall back to between the -5% and +5% lines until these trade tensions wear off or, if not, then back to the December lows – still another 15% drop from here.

We added more hedges into the weekend and slept better for it but we still have plenty of long positions (or they wouldn't be hedges, they would be bets) and we do hope the market can overcome this latest round of idiocy from the White House but, at th moment – it doesn't look all that promising.

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