by Michael Ballanger, Market Oracle:
Precious metals expert Michael Ballanger discusses Donald Trump’s trade war with China and the implications for the gold market. When I played pro hockey in Richmond, Virgina, it was during the era of “Slapshot!” and the Broad Street Bullies when gooning (fighting) was fashionable and an integral part of the sport. Stocking your team with two-or three enforcers meant that the finesse players could sail around the ice doing pirouettes and triple axles and dipsy-doodles without the fear of some 250-lb lumberjack from northern Quebec impaling them. I learned quickly from our coach, the legendary Forbes Kennedy (one of the toughest NHL players ever) that the way to avoid getting into a donnybrook with someone you really did not wish to engage was “Don’t fookin’ look at ’em!” because if they caught your eye and were staring you down, you then were forced to drop the gloves. I made a habit of staring into the eyes of all the finesse players and upon the skates of the goons. Of course, there was the odd occasion I forgot and wound up holding on for dear life when one of the Neanderthals tricked me up and forced me to drop ’em but for the most part, old “Forbie” was absolutely spot on and you could stay safe if you avoided the glaring, maniacal eyes of the Gilles Bilodeaus and Billy Goldthorpes of the world but ONLY if you just “didn’t fookin’ look at ’em.”
So, with trade wars breaking out everywhere featuring Donald Trump’s bellicose insistence upon tackling the soon-to-be biggest economy in the world, it is as if the whistle has blown and play has stopped as the current POTUS stares directly into the piercing, engaged eyes of the biggest economic “goon” on the planet. It is analgous to watching Wayne Gretzky giving the “evil eye” to Bob Probert, an event that could and would NEVER happen in real life whether hypothetical or not. It is beyond surreal the interplay between a country whose super freighters are lined up offshore San Francisco and New Orleans and New Jersey and Miami just waiting to dump billions upon billions of reverse-engineered, Western-designed and very cheap Chinese goods into a completely shopping-addicted Amercian consumer pool while their political masters hold on to $1.06 TRILLION of U.S. debt, ready at the flick of a switch to be jettisoned into the global bond market causing all sorts of non-temporary dislocations. The image of Donald Trump pulling the jersey over the head of Xi Jinping (China’s leader) and windmilling him into submission is simply not going to happen, so when we all read of the markets buckling under the weight of a possible “trade war,” the infinitesimal collective wisdom of global market participants is handicapping this contest exactly as it should: it will NOT be a “war”; it will be a “beating” and the U.S. with all of its military might will not be the one skating first to the penalty box arms raised in victory.
The S&P barely escaped a weekly close below the 200-dma as a late-Friday intervention by the boys at 33 Liberty St. in New York engineered a last minute rescue. For now, this has all the trappings of a “correction” with the S&P down 9.3% from the all-time high of 2872.87. Mind you, the 200-dma was twice before broken intraday on both Feb. 9 and last Monday, April 2. I was listening to a podcast with CNBC’s Fast Money options wizard Jon Najarian where he outright admits in the existence of a plunge protection team and nowhere was it more glaringly present than Friday afternoon. Stocks were in abject freefall with the S&P dropping a big 50 points between 1:00 and 3:00 p.m. until the orders were issued and the algos went to work. Unfortunately, I believe that there exists a much more pervasive directive that is going to eliminate any talk of an equity market “bubble” leaving the stockroaches high and dry.
Since we are soon arriving at the “Sell in May” month, I am of the opinion that many participants are going to exit early having just gone through a massive volatility spike and what can only be deemed a “mild” correction. After all, it was only 50 months ago that the S&P first topped 2,000, but what is incredible is that it was a little over a month ago on March 2, we had the ninth anniversary of the birth of the bull market with the low of 666.79. Nine years of intervention, price suppression, serial money-printing and government-sanctioned fraud has combined to form the greatest financial bubble in history and since the Deep State recognizes it for what it is, they have to pin-prick it gently in order to avoid a generational uprising, the likes of which we are already seeing in the cryptocurrency crashes.
Speaking of crypto-crashes, friends of mine that still attend meetings in the bistros of Bay Street tell me that the losses incurred in the cryptocurrency deals since last summer currently dwarf the losses in pot or mining deals. As I understand it, the brokers elected to all do “non-brokered” private placements so they could safely crowd out retail and institutional clients when the allocations were decided, the result being a “Divine Retribution” outcome where these massive drawdowns in net worth are owned by the greedy financiers that went “all in” to what was expected to be the “demise” of everyone else, including their clients. “What goes around comes around” is an old adage that certainly applies in this world of unbridled avarice.
Bottom Line: You want to be modestly short the S&P (via the SDS-ETF) into any early-week strength this week and consider a modest long position in the VIX (via the UVXY). I have purposely avoided the UVXY trade since I took profits in February above $25 hoping to replace it in the high single digits but it now appears as though the high teens will be about as good as it gets in the event that the SPY 200-dma caves in next week.