It Seems It Was About China After All

Markets are about 4% off their most recent highs set back at the beginning of the month.  That was when all hell broke loose on the China trade deal.  From what background we can find it seems that there were missed signs and missed calculations on both sides that got us to this point.  It remains to be seen where we'll go from here.  Both sides are now in the reset phase of negotiations.  All we see is public feigned  anger and the posturing that often comes at times like these.  I can remember critical negotiations with the Soviet Union as a kid over strategic arms treaties that followed the same pattern.  Many times one or both sides walked those deals to the point of breakdown only to be brought back to the table.  The reason for that is simple.  Both sides want the best deal possible for themselves and to do that requires you to bring the other side to the point where they're willing to walk away.  That way you find out where each side's real line in the sand lies.  That's where I believe we are today.  At some point we're likely to get a deal but it's probably further down the road than markets have originally believed.  Now we're grappling with the consequences of that.

Markets ran up from the Christmas lows last year posting nearly 20% returns from that point, largely on the belief we'd see a global deal that would be beneficial to both sides.  As those hopes have waned and as a probable deal gets pushed further down the road markets have struggled.  To me that's proof that a large part of this year's rally was in the end all about the Chinese deal.  Probability likely suggests a more volatile market now going forward till we get some glimmer of progress on the  China front.  

Of course there's the possibility that there will never be a deal, that the Chinese won't be able for strategic reasons be able to get to where we want them to be.  I think that's a very slight possibility but one that cannot be completely dismissed at this point.  In that case probability would suggest a longer period of time where markets need to adjust to whatever the new world order looks like when the dust settles from that.

Back Wednesday.