🍔Headline Roulette Continues as Short Squeeze Starts

Are we out of the woods yet? What we think will happen next in the tariffs saga

The world in trouble

First things first, last week’s thesis “World in Trouble” is already playing out. A news report from Financial Times has found Chinese factories shutting down and furloughing workers as orders dry up. US importers were facing duties of 145% so they simply cancelled orders, forcing manufacturers to cut production. With as much as 15% of all China’s exports going to the US, and even more being secretly funneled through other countries, it’s no wonder they’re feeling the impact.

Recall that we argued that the exporter almost always gets hit harder than the importer due to the way prices are marked up. The additional problem for China is that unlike the US, they have no social safety net so layoffs will hurt spending more than usual. China has typically sought to avoid potential situations of social unrest. For this reason, we think they are incentivized to come to the negotiating table soon.

Elsewhere, the other big focus was on April econ data from around the world, which offered a glimpse into how the global economy was reacting to tariffs. It’s not pretty. French, German, and UK PMI data showed a clear deterioration. In the US at least, they were still above the 50 mark separating expansion from contraction. Data over the next 30-45 days will be critical as that’s the lag time between manufacturing orders.

Headline roulette

The rest of this article is paywalled. Inside, you can read about:

• Where we think tariffs are going

• Earnings season is looking up

• Short squeeze is happening

• Gold and bitcoin - short term trade idea!

• Important breakout in SPX

• Portfolio update