What Did We Learn, Palmer?

And just like that, it was mostly over as quickly as it started.

And just like that, it was mostly over as quickly as it started.

Let’s take a quick score of the good, the bad, the ugly, and the lessons from Trump’s 90-day tariff pause for all countries except China, which has markets up about 9% to end the day and everybody involved with finance breathing a sigh of relief.

The News

The market jumped 10% today on a mix of relief, momentum, and short-covering. The 90-day tariff pause eased trade war fears, while stable bond yields and dovish Fed signals boosted investor confidence. Add in a wave of bearish positioning getting squeezed, and you had the ingredients for a sharp, fast rally.

The Bad News

Let’s get the bad out of the way first. There’s no doubt about it that the White House capitulated in some fashion here. Even Charles Gasparino admitted as much on Fox News a couple of minutes ago.

And there’s no doubt in my mind that the capitulation had a lot to do with the action in the bond market last night, which I wrote about here.

So, as it stands for Trump’s ability to stay resolute in the face of a wicked headwind, today proves that he is human and does have a breaking point.

Another negative is that the standoff with China remains, and President Xi Jinping is likely going to feel like he has leverage after watching President Trump capitulate. China is easily the most important country that we trade with, and so a lot still hangs in the balance of whether a new deal with China gets done. At least for now, China likely has a window where they can consider coming forward to strike a deal and not look as weak as they would have a couple of hours ago.

The Good News

The good news is as follows: first, I don’t doubt the White House when they say more than 70 nations have come to the negotiating table looking to strike deals with the United States.

There’s no doubt in my mind that a lot of these deals are going to be renegotiated to provide better terms for the United States. So, if that was the objective, I think the Trump administration is going to be successful.

On top of that, the good news is that this tariff pause essentially pins the United States with the rest of the world against China collectively. That should act to increase pressure on President Xi Jinping, and probably subtly increase President Trump’s leverage.

The other selfish good news is that I was right in my assumption this week that “cooler heads would prevail” and that this would be a very short undertaking. Multiple times since last week I said I thought it was more likely that this trade war would last only months, if not days.

Just chalk the whole experience up as another stock market notch on the bedpost—one more lesson learned from one more period of heightened volatility. Oddly, life seems to always have a way to keep going on.

The Lessons

That brings me to lessons and where we stand today. I can’t help but think about my favorite scene from the movie Burn After Reading.

The first lesson I hope everybody learns from this is that every price target you ever see on Wall Street is reactive and not proactive. If there’s anything you should’ve learned from watching all of the major investment banks revise, update, revise, and then update again their year-end S&P 500 targets and recession probabilities over the last 5 days, it’s that these forecasters aren’t forecasters.

Just like the sell side takes whatever bullshit a company gives them and runs with it, macroeconomic analysts respond to what has already happened—they don’t predict with any semblance of accuracy what will happen, in my opinion.

ZeroHedge made that point crystal clear when they put up the headlines from two Goldman Sachs notes—spaced 73 minutes apart—where they completely changed their recession forecast for the year:

This was not unlike Jeremy Siegel’s CNBC appearance that I pointed out earlier this week where he changed his outlook on rate cuts based on quick intraday moves in the market.

None of these people are going to help you figure out what’s going on, and you can’t trust any of them—including me. The lesson hopefully learned is: do your work on your own, educate yourself, and stick to your guns when you think you have it right.

As for my “forecast,” nothing has really changed with regard to the market’s valuation.

I actually still believe that once this miniature short squeeze and relief trade finishes, the trajectory is likely still going to be downward and we’re not starting a new “bull market”. I continue to look at the same indicators that I did before the tariff nightmare started: the Buffett Indicator and historical price-earnings averages both still indicate to me an overvalued market.

I may spend some time over the next day trying to find companies tied to China that participated in today’s relief rally that perhaps shouldn’t have seen any relief at all, with tariffs on China still over 100%. There may be some interesting pair trades out there—with the overall indices on the long or neutral side, and the companies still exposed to China on the neutral or short side.

But for now, given that the chaos in the bond market has subsided and we have some certainty as to where things are going be for the next 90 days, I’m mostly going to focus on getting a good night’s sleep to make up for watching the overnight shitshow in the 10-year Treasury market last night.

Vaya con dios, my kind subscribers.

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