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Market Keeps Rallying on Regurgitated News
The Dow Jones started off the final day of the week with a pretty strong rally; we were up a little better than 200 points earlier in the day. Then we got some weaker than expected economic data which I will get to a bit later, and the market sold off. The Dow never quite went negative, and then we rallied back and the Dow managed to end the week back above 26,000 with a 110 point gain. In fact all of the major indexes were positive on the day. What caused the early morning rally was optimism, once again, that a trade deal with China is about to be signed, and it’s kind of amazing how often the markets can bite on this and keep rallying on regurgitated news, because, we’ve heard this before.
According to Trump the Chinese Are Going to Pay, but According to Economics, Americans Are Going to Pay
As I have said on this podcast before, we are going to get a trade deal. A trade deal with China is inevitable. The only positive about the trade deal is going to be that it takes the prospect of a self-inflicted wound off the table. That’s the only good thing. If we have a trade deal, then Trump is not going to increase tariffs on American businesses and on American consumers. That is the empty threat that is out there: “Hey, we’re going to force China to the negotiation table because, if they don’t, we’re going to erect these tariffs, which, according to Trump the Chinese are going to pay, but according to economics, Americans are going to pay. That’s one of the reasons that we can’t afford to actually use this weapon that we are threatening the Chinese with.
Promising the Moon
In fact, one of the reasons that you had all this optimism about this new deal was Larry Kudlow was out talking about how great the new deal is going to be – how this is going to be a huge win for America, it’s a fantastic deal, it’s a boon, it’s better than we could have expected, it is all-encompassing… He has really raised expectations. Doesn’t Kudlow know anything about the expectation game? The idea is to under-promise so you can over-deliver. It seems like we’re destined for failure here because everybody in the Trump administration is promising the moon.