Trillion Dollar Tweets

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On the most recent stock market sell off longer duration bonds did not strengthen anywhere near as much as they had historically. Bond yields fell slightly, but only slightly. Whereas in stock market sell offs prior to this year bonds usually strengthened.

About a week ago it seems the Federal Reserve had a different person lined up each day to do an interview where they suggested raising rates is the right thing to do, hinting to the market that the recent stock market revulsions would have no impact on their resolve and up, up, up rates will go – hawkish.

There are few corners of the bond market where Jim Grant sees actual value. About the only area he named was some tax-free close-end municipal bond funds. Even Federal Reserve insiders are mentioning the economy is growing more interest-rate sensitive:

 we have to keep in mind in the medium term, that tailwind could turn into a headwind if the U.S. decides it needs to do things to moderate its debt growth in the future. And the other part of that potential headwind is we have to keep in mind that with this much debt, our economy is much more interest-rate-sensitive even than it was even 10 years ago. And meaning, a rise in rates affects debt service costs more. Corporate debt is higher, although I think it’s probably manageable. And we know government debt is dramatically higher.

Yesterday the stock market was up & so today opened with a Trump tweet touting progress with China.

The broader US stock market jumped. Utility-type value stocks like Verizon or AT&T slid  while most the market went up.

The US-listed Chinese stocks ripped higher. Pinduoduo up 15%,  IQIYI up 13%, Tencent up 8%, JD.com up 7%, Alibaba up 5%, Bilibili up 5%, Baidu up 4.5%, etc.

So is the bottom in?

Risk on?

More likely that great, long conversation full of progress on  a deal is a confidence boosting fake news item.

Stronger stock market = stronger Trump midterm elections on November 6th.

“I don’t buy the story for a second,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “This seems a perfect way to ensure equities rally into election day, put Xi into a box in terms of what is expected of him and then have someone to blame when the deal then falls through.”

Looking past the Tweets, the broader anti-China sentiment is spreading. The United States is still driving the narrative, highlighting the relentless intellectual property theft.

 “Taken together, these cases, and many others like them, paint a grim picture of a country bent on stealing its way up the ladder of economic development, and doing so at American expense,” said John Demers, who heads the Justice Department’s national security division.

Suddenly the United States isn’t standing alone against China. Here’s an article from French Ambassador Jean-Maurice Ripert & German Ambassador Dr. Clemens von Goetze where they do not dance around the core issues:

A fourth example would be to replace provisions in technology import-export and joint venture regulations that restrict foreign ownership and freedom to exert IP rights, to lift burdens on IP rights holders suffering infringement and to show real commitment to preventing and fighting massive counterfeiting.

I sold out my tiny positions in Tencent & Yandex. Now I am mostly in cash.

Apple gave soft guidance for next quarter after hours & they also announced they are going to stop reporting unit sales. That shift in reporting clouds the message they have shared over the past few years about making money off device sales rather than spying on users for ad targeting.

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