If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise. . .
. . . Rudyard Kipling
We really like Rudyard Kipling’s line, “If you can trust yourself when all men doubt you, but make allowance for their doubting too;” and clearly “men” doubted us when on October 2 (Tuesday, two weeks ago tomorrow) our short-term proprietary model flashed a sell signal and we subsequently advised selling trading positions. It was a good “call” even though we had no idea the decline would be that severe as it spilled over into a minicrash last Wednesday! We also thought Andrew did a very good job of identifying the trading bottom late last week. Quite frankly I would have used my long standing mantra, “never on a Friday” instead of predicting a bottom. Indeed, once the equity markets get into one of these selling skeins they tend not to bottom on a Friday preferring to have participants brood about their losses over the weekend and show up in “sell mode” on Monday/Tuesday of the following week. I would have thought that sequence should have played last week given the Italian cabinet’s budget talks over the weekend that may just determine if Italy stays in the EU or leaves. So we will see if last week’s low proves to be the bottom.
While there have been a plethora of pedestrian reasons offered up for what caused the indiscriminate selling we continue to like Monaco Capital founder Joe Monaco’s reason that we paraphrased in last Thursday’s “Morning Tack:”
With all the current “chaos” in the media, I have to complete my thought and tell you what I am convinced is going on. The People’s Republic of China has three major objectives right now:1) Hurt the USA,2)Prop-up their currency, and 3)Obtain cash to stimulate their economy. Therefore, given the fact that U.S. treasuries are getting clocked, but utilities are rallying, I am convinced the jump in interest rates is due to the Chinese selling vast amounts of their treasury holdings. By selling them they, 1) push U.S. interest rates higher which, hurts the U.S. consumer and possibly President Trump’s approval rating right before an election,2) They get billions of U.S. dollars, allowing them make open market purchases of the renminbi, which supports its value in international markets, and 3) with all those renminbi they can now freely spend inside the country of China to stimulate their economy. With one transaction they accomplish three major objectives. This is the only thing that makes sense to me. And if I am right, once that selling subsides we are in for one major rally in the U.S. financial markets.