All of the risks discussed these past weeks and months are coming to a head at the exact same time. Policy-makers remain steadfastly delusional, boxed in by their well-marketed fantasy that the 'Conomy is strong.
Overnight, the S&P gapped down to the key support level on news of major escalation in the trade war. If this level doesn't hold, all sides are going to realize they just lost the Global war of hubris, fraud, and delusion:
Cramer: "This surprise escalation in the trade war is economic Pearl Harbor"
Around the same time that Trump and Xi were shaking hands on a "trade truce" at the G20 photo-op in Argentina Saturday evening (December 1st), Canadian authorities, at the behest of the U.S., were arresting the CFO of one of China's largest Tech companies on yet-to-be-announced charges. No surprise, now the gloves are off in the global trade war. Following that revelation last night, U.S. futures "mysteriously" smash crashed ~65 S&P points at the 6pm open:
To what extent this crash was related to the news or follow-on selling from Tuesday, or combination thereof, is irrelevant at this point. This is merely a hint at what is coming:
"After we saw this Huawei news hit, it seemingly (and inordinately) contributed to an almost impossible 65 handle drop in Spooz (S&P futures) on the overnight reopen"
"You have to see this as a significant escalation in the trade war"
What happens next to Meng, the daughter of Huawei's reclusive founder, could have huge repercussions for the US-China relationship"
In a nutshell, the trade war has expanded far beyond jobs and factories to the longer term "war" for global economic hegemony. Both sides are saying one thing and doing the exact opposite, which is why the truce had the shelf life of a phony handshake.
More importantly, and what goes assiduously unsaid, is that the Chinese and U.S. economies are now inextricably linked. China is a vital part of the U.S. supply chain to an extent that dwarfs the trade deficit between the two countries. While the trade deficit is measured in hundreds of billions, the U.S. mark-up on goods made in China is measured in the multi trillions.
Both sides believe they can "outlast" the other due to their self-evident economic prowess. Unfortunately, both sides are far too hubristic to admit that their economies are swaying like twigs in the wind. A heavyweight fight in the 12th round. Two bald men fighting for a comb.
The more the U.S. economy strengthens relative to the rest of the world (now imploding), the wider the trade deficit, as imports increase and exports fall:
"The Commerce Department said on Thursday the trade deficit increased 1.7 percent to $55.5 billion, the highest level since October 2008"
Stocks are now on pace for the worst quarter in seven years, led down by Tech, Financials, Housing, Autos, Retail, Energy, Transports, and Industrials. Basically everything except Utilities and Staples:
"Job growth has likely peaked"
Markets lead the economy
