Trade Wars? Crypto Buying Opportunity

For all the talk of trade war, the current environment has opened up some compelling buying opportunities.

Stock Market Pullback: This Too Shall Pass

It didn’t take long for the stock market to react to news of Gary Cohen’s resignation from his job advising POTUS.  After opening down 150 points the Dow Jones Industrial Average continued to slide. At the time of this writing, the market was off nearly 400 points.

We chose to focus on the old line Dow 30 companies which are assumed to be the most affected in the wake of the Cohen exit.  The departure takes place just after last weeks threatened tariff increases by The White House that may have accelerated Cohen’s departure.  Either way, Cohen represented the voice of free trade.

His successor is expected to be Peter Navarro who along with Commerce Secretary Wilbur Ross supports protectionists trade policies.  In a market climate that was just recovering from it recent sell off, investors are showing their fears.

Why We Should Not Run For Cover

Whenever the lunatics take over the asylum no one knows what to expect next.  Why is this time any different? Well for one thing let’s examine POTUS’s MO. As a negotiating tool, Trump has always love creating chaos.  It has served him well as a private businessman. For better or worse, he has used it in his time in Washington.

Bluster may cost him points in the popularity polls but we all know that matters little to him. Bluster is what he used in the whole silly mess over the border wall with Mexico as well as the immigration issue.  As Shakespeare wrote, lots of sound and fury, signifying nothing. Ok, Ok, that may be too harsh. In Trump’s case, the sound and fury signifies strategy.

No Great Secret

No matter who is advising POTUS, the game plan is no secret.  Renegotiate NAFTA withdraw from the Trans Pacific Partnership and build his political capital with large U.S. manufacturing corporations.  

The fact that higher tariffs on steel and aluminum were targeted was a matter of picking the lowest hanging fruit.  There is a worldwide glut of these commodities and yet prices are far to high caused by excessive foreign government subsidies.  Here Trump has an easy target but things get a whole lot more complicated when other tariffs are considered. It is call trade retaliation.  Students of history are reminded how trade wars set the stage for the last world war. Trump is not that foolish.

Investors may have reason to be concerned over valuations placed on the stock market.  After all, they have not been this high before so nerves are understandably on edge. At some point yields on the 10-Year U.S. Treasury Note are going to pull money out of stocks. However, Gary Cohen’s departure is not going to change the shape of the world, it will still be round.

Currency Markets Reaction Is Mild

The currency markets reacted pretty much as you would expect to trade fears.  The dollar was down against the Euro and most Asian currencies at the outset of trading in New York but by midday things looked like any other day.   If there was genuine concern over the future trade policies of the United States, the currency markets would have been in turmoil.

Cryptocurrency Values

What is going on the the price of crypto given the stock market behavior.  If investors are truly fearful and wish to protect themselves for possible trade wars, they should be eyeing things like bitcoin, Ethereum, Ripple etc.  Instead the crypto market is conspicuously weak. At the time of this writing, Bitcoin was down about 6% while Ether fell 13%.

On a day like today, fundamentals don’t seem to be playing much of a role in pricing.  Take Ripple XRP for example. This morning the company announced it had developed a blockchain payment app in cooperation with 61 banks to speed up transactions in Japan. At last check of XRP, the price was down more than 8%.  Will somebody please explain why this is not a good time to be buying crypto?  

Featured image courtesy of Shutterstock. 

 

Author:
James Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.