Trade War Tuesday – Trump Fires off Another $200Bn in Tarrifs, China Fires Back

The new duties will go into effect "if China refuses to change its practices.


Isn't this fun?  Diplomacy via twitter is a case of voters getting exactly what they deserve and we'll see how much the market suffers for it.  We gave you hedges yesterday that can turn $2,000 into $10,000 and it's the same hedge I gave you two weeks ago that could turn $500 into $10,000 so I don't feel at all bad when I say "I told you so" as I ranted on and on all month about how this was going to escalate and end badly

This, by the way, is not the end, this is just the beginning as Trump the First has asked for ANOTHER $200Bn worth of tariffs on Chinese goods in retaliation for the $34Bn worth of tariffs they put on our goods which was a retailiation against the $50Bn we put on their goods first.   

The new duties will go into effect "if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced," the president said in a statement provided by the White House late on Monday.  Meanwhile, Trump is fighing Congress tooth and nail to REMOVE sanctions against ZTE – because he was paid $500M to do that, so the real message to China is "PAY ME!"  This is why you don't negotiate with terrorists – it only makes them come back for more…

Beijing has already said they will retailiate, saying: "This practice of extreme pressure and blackmail deviates from the consensus reached by both parties on many occasions and is disappointing for the international community. The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends," the Commerce Ministry said.

Seriously people, let's step back for a second to consider that CHINA has just accused the US of BLACKMAIL and of violating International Laws and undermining diplomacy – all in one paragraph!  President Trump is undoing 70 years of hard-faught diplomatic steps that have given us 70 years of relative peace and prosperity.  Who actually benefits from Trump single-handedly upending the World Order?

The clock is now ticking as we have until July 6th when the first round of tariffs kick in on both sides and good luck getting Trump to skip a golf vacation around July 4th (he wanted a military parade in his honor with giant missiles and tanks rolling down Pennsylvania Avenue, but that's on hold until November), so we really only have about 10 days to fix the World before things really go off the rails.

Crazy, but that's how it goes

Millions of people living as foes

Maybe. it's not too late

To learn how to love, and forget how to hate

Mental wounds not healing

Life's a bitter shame

I'm goin' off the rails on a crazy train

One person conditioned to rule and control

The media sells it and you live the roleOzzy

Speaking of going off the rails in two weeks – that's exactly how long Angela Merkel has to save her Government over immigration issues that are tearing Germany apart.  Only in this case, it's the opposite of the US as Merkel is firmly against turning away immigrants (being from East Germany herself) while her Conservative opponents want to Make Germany Great Again (MGGA) by rejecting non-Germans (what could possibly go wrong?).

Using the same and possibly also Russia-backed talking points that the GOP is using in the US, Merkel's opponents are not backing down on kicking immigrants out – they are simply giving her two weeks to make deals with other nations to accept them – or else they will pull their support from her Government, causing it to collapse which will then require elections where once-again, the Putin-backed party can take power!  

Even the negotiations themselves will test the credibility of the entire EU as these immigrants are from other EU nations and should, under EU law, be freely accepted.  Merkel will have to spend political capital, call in favors and twist arms to get a deal and stay in power so, even if she wins – here political capital will be expended and her powers greatly diminished and then all it will take is one crime they can pin on immigrants and the Conservatives blame Merkel and take power anyway.  It's a brilliant plan that will cost us the only World leader, besides China's Xi, that can still stand up to Putin.  

President Donald Trump weighed in on the debate on Monday, writing in a tweet that “The people of Germany are turning against their leadership as migration is rocking the already tenuous Berlin coalition.”

That tweet, by the way, sounds more authentic if you say it with a Russian accent…

As I noted yesterday, we exect the S&P to re-test 2,728 so we're right on track this morning and looking like we''ll hit 2,773 so another 45 points to fall from here before we even TEST the top of the range we expected to be in for the rest of the Summer. 

I'm still expecting Tesla (TSLA) to be the catalyst that wrecks the Nasdaq as it becomes this century's   Already you can see the wheels falling off the wagon as Model S cars spontaneously combust and Musk blames "saboteurs" for delays at the factory.  Now, whether there really are saboteurs seeking to undermine Elon's production goals or whether he is insane and paraniod or whether he's just making it up to cover up the fact that there was never any way they would hit his promised June 30th deadline of making 5,000 cars a week – any of those items is a good reason to get the F out of TSLA stock, right?  

We were hoping it would get back to $380 before we shorted it (see last week's notes as well as this good article by Dave Pinsen) but that's not looking too likely now so the trade idea we'll put in our Short-Term Portfolio is:

  • Sell 3 TSLA July $380 calls for $18 ($5,400) 
  • Buy 4 TSLA July $435 ($70)/$400 ($42) bear put spreads at $28 ($11,200)

That's net $5,800 on the $14,000 spread and we'll make $8,200 (141%) if TSLA is below $380 on July 20th (expiration day).  In a bear put spread, we buy the July $435 puts and sell the July $400 puts so anything below $400 pays us the full $35 and that's $14,000 but we owe back money to the short caller for anyting TSLA is above $380 so could be $6,000 if they are at $400 – but that would still be a nice profit.  

Meanwhile, our DXD spread looks good at the moment and we'll see how bouncy the Nasdaq (/NQ) is off the 7,200 line but our premise for shorting the Nasdaq last week was that Apple (AAPL) would have a hard time getting past the $1Tn mark and there are too many 100x earnings companies and we fully expect TSLA to be the first company that makes the crowd realize that some of these emperors have no clothes at all!  

Be careful out there.