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Window-Dressing Wednesday – Can the Indexes End August on a Positive Note?

We're down a lot for the month.

We're down a lot for the summer, in fact as the S&P 500 (/ES) was at 2,971 on July 1st, 2,980 on August 1st and on May 1st, we were at 2,952 and today at 2,860 so we could have, in fact, sold in May, gone away and had a great, long vacation – instead of feeling very much like we need one after treading water all summer.  

In our Mid-Year Portfolio Review our main Long-Term and Short-Term paired portfolios were at $2,093,568 (from a $500,000/$100,000 start in Jan, 2018) and our strategy was to stay neutral in what we thought would be a choppy market and now, two months later, the LTP/STP stand at $2,075,462 but we've moved $100,000 more towards cash in the LTP and $75,000 more to cash in the STP so we've lowered our exposure while also taking advantage of dips to roll our long positions as planned when I said in early July:

That's our very simple long-term investing strategy in a nutshell.  Stocks cycle up and down and we almost automatically take advantage of the dips buy buying bigger positions and because we usually sell calls to cover our positions, we tend to set realistic targets for our exits though that doesn't prevent us from setting up new positions using SOME of the cash we made on the first round.  The bottom line is we don't just let our risk expand – the system keeps the cash moving down to the bottom line…

So staying even(ish) and moving $175,000 (8.3%) back to CASH!!!, where it's safe, was a reasonable way to spend our summer but, on the whole, I would have been happier hiking in Norway or something else far away from all the nonsense going on in this country.  Then I could have come back to work on Tuesday (Monday's a holiday!) and said "Oh, is Trump still President?"   

We did a little bit better with our Options Opportunity Portfolio, which was featured over at Seeking Alpha and was initiated on Jan 2nd, 2018 with $100,000 and, as of June 17th, we had run it up to $276,735 and, though we were also cautious with the OOP over the summer, we didn't take as many big hits as the LTP did, as it was more aggressive in retail plays that didn't work out as well as HMNY, who completely died on us.  Anyway, as of our 8/13 review, the OOP was up to $330,610 for a nice summer gain of $53,875 which is 53.8% of the original amount and a very respectable 19.4% of what we had in June – so that was worth playing with.

Another public portfolio we publish over at Seeking Alpha is our Money Talk Portfolio, which we only trade quarterly, live on Bloomberg Canada's Money Talk show.  That portfolio started with just $50,000 back on 9/6/17 and, back on June 12th, we were up to $116,043 and I didn't do the show this summer (I'll be on again next Wednesday) so none of the positions have been touched but we were indeed very well-balanced, coming in at $114,863 in the last review – down $1,180 (1%) for the summer without touching a single trade.

There was no Hemp Boca Portfolio (another portfolio we trade live on a show) back in June but we began it this summer with $50,000 and, as of August 20th, it was down to $43,205 (-13.6%) as 3 of our 4 positions got off to a bad start.  We pressed our bets on the Marijuana ETF (MJ) and Macy's (M) and, so far, neither one is turning around and, if there's no trade deal with China next month, I think M will get worse but we are giving it another month.

And finally, there's our Butterfly Portfolio, which is always the steadiest of our PSW Member Portfolios as we don't swing for the fences – we just focus on selling as much premium as possible, following our core "Be the House – NOT the Gambler" strategy.  Although we are not restricted by show dates in the Butterfly Portfolio, it's also a very low-touch strategy aimed at generating 30-40% returns annually (see "The Secret to Consistent 20-40% Annual Returns on Stocks").  The Butterfly Portfolio is an excercise in patience but we had a good summer as our $100,000 Jan 2018 start was right on track, up 64.8% in June at $164,759 and, in our August review, we're at $178,301, gaining $13,542 over the summer with almost no adjustments.  

So our newest portfolio is in trouble but, othewise, it's been a good summer and now we have to decide if we want to risk a very, VERY uncertain September where we may or may not get a trade deal and, even if the Fed does give us a rate cut on the 18th, if it's not enough for Trump – his last tantrum sent the market 5% lower – right after the Fed did give us a 0.25% cut and, since then, the Fed has hardened their stance against bending to the President.

If the tariffs do go into effect next week – it's probably time to pull the plug but by then it will be harder to cash out – especially if a panic begins to form so, for money you care about – I'd seriously consider lightening up now – just in case.

 


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  1. Sell in May / Phil – For the NYSE and Russell, we could have sold in May 2018 and gone away! And still be ahead by 5%.


  2. Morning, All!

    We will not be having our usual weekly webinar today or next week.

    Back to it next week! Back again in 2 weeks.


  3. Good Morning!




  4. Yesterday's post had a news story about a new life insurance company called Ethos  https://www.philstockworld.com/2019/08/27/turnaround-tuesday-trade-talk-turns-positive/#comment-7844761

    This new life insurance company is described as "a loss-making company" and they do not do medical underwriting.

    That does not sound like an insurance company to me, that sounds like a ponzi scheme.

    "Nothing really matters,
    Anyone can see,
    Nothing really matters,
    Nothing really matters to me.

    Any way the wind blows. "


  5. Good morning! 

    Sorry no webinar next week either as they've moved BNN up to the afternoon.  

    Oil popped over $60 on Brent (/BZ) and $56 on /CL so bad for our morning shot bets and we'll see how API looks but it's a holiday weekend – so any excuse to stick it to you at the pumps will be taken.

    /RB is a good long on the new contract at $1.56

    Big Chart – Those 20 dmas should not act as resistance – that's a bad sign if we are red today.

    5%/StJ – If it were just 5% or 10% I wouldn't be so worried about our positions but I think we may see those Dec lows again (2,400) and that's a 16% drop from here still.  We only have protection for a 10% correction and that's pretty expensive (more than 10% of our portfolios is hedges) so we'd have to double it to 20% to be "safe" and then it's really a coin flip that we rally up and we lose the 20% hedges and end up with no gains from the rally or the market does drop and our hedges barely cover the long losses – so what's the point of not cashing out?

    See, I'm talking myself into making the call!  

    Storm looks like we're just going to get wet down here (right at the bottom of the cone where it hits Florida.  Puerto Rico too, just a storm while it goes over them but a nasty one.  

    Ethos/Mike – I don't see how a new insurance company will be able to build up profitable reserves at these low rates, if the model breaks early on, they could be BK very fast.  They seem to concentrate on Life Insurance so that should give them time to build a base but you still need to make money on the reserves for these formulas to work and that means they'll be risking their reserves chasing returns as well – very dangerous.

    MO struggling at $45, sellers seem confident in their premise.  

    Ignore the Stock Plunge, a Philip Morris-Altria Merger ‘Is Forward Thinking’


  6. https://www.bloomberg.com/news/videos/2019-08-28/damage-trade-war-has-done-to-u-s-and-china-is-tiny-says-ecognosis-advisory-s-ceo-video

    This guy kind of puts the trade war in perspective. Doesn’t change the facts of the  market going bananas every time the tweeter-in-chief get a wild hair up his ass, but I think worth watching  


  7. Trade war/Dawg – I think the damage is slowing the growth and that's a lot of damage.  With full employment (plus or minus 500,000 jobs!) the economy should be growing close to 4% and we're barely at 2% so the "cost" is 2% of GDP or $400Bn.  Also, taking the wind out of the sales of the global recovery and clearly some countries are already in Recession – that's Trillions in damage and could get much, much worse if things head south from here.  I think Freris is really talking from a global standpoint and yes, $400Bn for us and maybe the same damage to China is not a big deal in an $86Tn global economy but it's specifically hitting 2 of the main drivers of that global economy at the same time.


  8. Wow, and we're green again.  It's just incredible.  Makes it so hard to be sensible and cash out when we're living in an unsensible world…

    If the VIX is over 20 – don't trust the rally:


  9. The US eliminated measles in 2000. The current outbreak could change that


  10. Trade wars / Phil – What people are missing out is the long term damage as well. For example, the agricultural market share that our farmers are losing in China might never be fully recovered. If we have to subsidize them (one way or another) $100B/year over 10 years because of that, it's $1T. Pretty soon you are talking about a lot of money.


  11. All exports to China combined are under 2% of GDP. The trade war cannot cause a 2% growth reduction. What can cause a 2% growth reduction is a yield inversion caused by external factors like 0 and negative yields in most of the rest of the world. Then you’ve got every pundit and even the hated Fox News every night talking up the trade war damage “OMG we’re all gonna die if Trump puts any more tariffs on Wal-Mart crap!!” Meanwhile Wal Mart and Target are selling Chinese-made crap faster than they can stock the shelves. It’s a lot of nonsense. 


  12. Good point on market share, StJ.  The longer this drags on, the firmer their supply deals becomes with others and who the Hell else are we going to be able to sell to.  Idiocy!  

    2%/Dawg – That's apples and oranges because what Trump is doing is shutting down our exports and it's not just the goods that are exported, but the jobs they create and, of course, the tariffs take money out of either Corporate Profits or Consumer's Pockets and those dollars have a multiple effect of 3-4x through the economy, lowering demand for other goods and services and costing more jobs.  Job growth has clearly slowed, economic growth has slowed too – not nonsense at all.  Here's a good IHS report you can read on the subject:  https://ihsmarkit.com/solutions/us-china-trade-war-impacts.html

    Source: Markit Economics, US Institute for Supply Management and China National Bureau of Statistics

    Image result for trade war damage


  13. EIA just as good as API but not too much of a pop in oil, surprisingly:

    • EIA Petroleum Inventories: Crude -10.0M barrels vs. -2.1M consensus, -2.7M last week.
    • Gasoline -2.1M barrels vs. -0.4M consensus, +0.3M last week.
    • Distillates -2.1M barrels vs. +0.9M consensus, +2.6M last week.
    • Futures +2.8% to $56.47.


  14. Phil,

    Hedging question when time permits. I want to hedge shares of the mid-stream pipeline MLP, EPD. Recent high of 30.87 and recent lows of 27,50, now 28.15. EPD is more gas transmission than oil. However, no options on DGAZ, the more liquid inverse nat gas etf, and OK bid/ask spreads on SCO. Correlation is fair between EPD and SCO. Your thoughts on selling Oct 16 puts for 1.25ish.

    Thanks in advance



  15. Uber & Lyft’s Broken Business Model


  16. Tiffany sales fall on tourist spending drop in U.S., but earnings beat estimates



  17. What is prorogation and why is Boris Johnson using it?


  18. Can We Survive Extreme Heat?


  19. SCO?/8800 – There were a lot of symbols there but I take it you want to sell SCO Oct $16 puts for $1.25 to hedge your EPD stock at $30.87?  EPD has options so I'm not sure what your goal is?  I see they pay a nice $1.76 (6%) dividend so I get owning the stock but they have 2021 contracts so why not just sell the 2021 $27 calls for $2.65 and drop your net that way?  If they go lower, and you still have faith, then sell puts in them (the 2021 $25 puts are $2) and before you know it you'll have knocked 15% off the price in 16 months.  Do that for 4 more years and you'll have free stock.  

    SCO goes down if oil goes up and it's a 2x ETF and oil is $56.12 and gained 2.5% this morning, which would knock SCO 5% lower from $18.50 to $17.50 and that's just a one-day move – you are giving them 51 days to burn you.  Don't forget, we're still on the brink of war with Iran – anything can happen – especially with this President.

    Remember when we used to make fun of countries that had crazy leaders who said and did strange things?  Now we are one of those countries and those countries were generally uninvestable!   


  20. Sudden burst of rationality on MO – $46.40.


  21. Hi Phil;   A couple of questions for you today:  First, you suggested closing /NG yesterday.  I have a 2021 UNG position as I believe you do in the OOP, would you close that as well?  Secondly, thoughts on DOW as dividend stock.  Buy the stock and sell 2021 40 puts and 45 calls for $11.70?  Overall return at $45 would be 50% plus 6% dividend.   Worst case is owning 200 shares at $35 plus you would have collected $420.  Thanks


  22. Phil,

    Thanks for the thoughts on EPD. I had considered selling Oct 30 strike calls on EPD when EPD was 29+ but premium was too meager. For tax reasons, I  didn't want to sell in the money EPD calls (27) and risk being called away.  Owning SCO(now 17.10) at circa 14.75 seemed like a reasonable risk. Didn't factor in the possibility of hostilities, or serious threat thereof, with Iran. 

    Thanks for the perspective, as always.


  23. /NG/Options – I really don't like the direction global NG prices are going.   We got back to the monhly high so I wanted to take the money and run on the Futures.  Longer-term, I still think global prices end up being more like $3.50 than $2

    In the OOP we have this UNG position:

    UNG Short Put 2020 17-JAN 23.00 PUT [UNG @ $19.54 $0.48] -5 4/18/2019 (142) $-1,150 $2.30 $2.20 $-1.10     $4.50 - $-1,100 -95.7% $-2,250
    UNG Long Call 2021 15-JAN 19.00 CALL [UNG @ $19.54 $0.48] 20 7/17/2019 (506) $7,700 $3.85 $0.05     $3.90 $0.23 $100 1.3% $7,800
    UNG Short Call 2021 15-JAN 25.00 CALL [UNG @ $19.54 $0.48] -10 7/19/2019 (506) $-2,000 $2.00 $0.10     $2.10 - $-100 -5.0% $-2,100

    We just bought back short Jan calls for a $1.35 gain ($1,350) and UNG is at $19.54 with /NG at $2.25 and we expect $3, which is 30% higher so $25 is still the target and the position is about even overall and we're not too aggressive on the short puts (which we'll roll) so I don't see any urgency to kill this one though, as I said, I'll pull the plug on everything if the LTP can't hold $1,200,000 – now $1,284,936.

    As to Dow, they are going to go with the economy and this DOW isn't really the same Dow it was in the past.  Sales are declining more than 10% a year and profits will be lucky to clear $2.5Bn and $42.50 is $31.5Bn so p/e is 12.6, which is good if they turnaround but look at all the troubles we have betting on turnarounds.  That dividend is $3.7Bn a year for them – a lot more than profits – so I'd be concerned it gets knocked down from $2.80.

    If you are inclined to build a position, I'd suggest the short 2021 $37.50 puts at $5.50 (almost double the dividend), which net you in at $28 – that's a good cushion – OR (not and) the 2021 $40 ($6)/50 ($2.55) bull call spread at $3.45 which is only $1 in premium to risk much less money and still $6.55 (190%) upside potential in 16 months.

    Trump trying to buy more votes:

    • Pres. Trump will announce a plan to increase demand for biofuels, which farmers and producers say has beet hurt by waivers the administration has issued exempting oil refiners from requirements to blend ethanol into the U.S. fuel supply, Secretary of Agriculture Perdue says.
    • Speaking at an agriculture policy forum as part of the Illinois Farm Progress Show, Perdue also said the Department of Agriculture has presented proposals on strengthening infrastructure to allow more widespread use of E15.
    • The tug of war between the oil and corn industries is a growing headache for Trump, who struggles to appease two constituencies that are crucial to his re-election in 2020.
    • More than 36% of 755 active homebuyers expect the next recession to hit sometime next year, according to data from Realtor.com.
    • And if a recession recession hits, almost 56% of those surveyed said they'd stop their home search until the economy improves.
    • In a March survey of 1,015 home shoppers, just under 30% said they expected a recession in 2020.
    • In the most-recent survey, 17% expect a recession to start this year, 14% expect sometime in 2021 and 7 percent expect sometime in 2022.
    • 8% say a recession will occur in 2024, and 17% said they didn't know.
    • Atlanta Fed's Business Uncertainty Index rises, while the Business Expectations Index falls to its lowest point since July 2017.
    • The expectations index at 91.3 fell from 94.3 in July; with sales growth expectations falling to 87.7 from 96.3 in July; expectations on job growth and capital expenditures both rose.
    • The uncertainty index rises to 97.8 in August from 91.3 in July, but it's still well below 111.1 reached in December 2018.
    • Uncertainty over sales growth increased to 108.0 from 99.1 and concerns about capex growth rose to 97.9 from 93.4.
    • As with many economic charts, the path is rather zig-zaggy, so take a look to see the overall trends.

    • Crude oil futures (USO +1.3%) are in the green but off highs of the day, after U.S. government data showed the largest weekly drop in five weeks for domestic crude supplies, helping ease concerns about slowing demand; October WTI +1.8% to $55.91/bbl, Brent +1.8% to $60.57/bbl.
    • Crude stockpiles fell by 10M barrels, roughly in line with an 11.1M-barrel drop reported by the American Petroleum Institute and well above an expected decline of 4.7M barrels anticipated by analysts polled by S&P Global Platts.
    • "It was an incredibly bullish report, one of the more bullish we've had in a while, with draws across the board and of course the massive crude oil drop, which was generated by another drop in imports," says Again Capital's John Kilduff, adding the draw down likely was due to a drop in Saudi exports to the U.S.
    • Natural gas prices (UNG +2.9%) also are higher, +3.1% at $2.27/MMBtu, "likely finding support on anticipation for an injection equal to the five-year average" in Thursday's EIA storage report, says Schneider Electric analyst Christin Redmond.
    • Morgan Stanley lowers its oil price forecasts for the rest of the year, citing softer demand growth due to weaker global economic growth and rising shale production that could offset OPEC's attempts to support the market.
    • Stanley now sees Brent at ~$60/bbl for the rest of the year from its prior forecast of $65/bbl and U.S. WTI crude at $55/bbl from $58 previously.
    • Oil demand growth for 2019 will slow to 800K bbl/day from previous expectations for 1M bbl/day and for 2020 will total 1M bbl/day vs. a prior outlook for 1.4M bbl/day demand growth.
    • "More cuts would be required in 2020 if [OPEC] were to balance the market," the Stanley analysts write. "Much depends on demand growth next year, but on our current estimates the 'call on OPEC' is about 1M bbl/day below current production in 2020."
    • Crude oil prices are higher this morning after U.S. data showed a big drop in domestic crude stockpiles; WTI +1.3% to $55.65/bbl, Brent +1% to $60.11/bbl.

    • Queen Elizabeth II approved Prime Minister Boris Johnson's request to suspend Parliament for almost five weeks ahead of Brexit.
    • That pushes the first day of Parliament's new legislative session to Oct. 14 and triggered accusations of Johnson leading "a very British coup."
    • The British pounds sterling falls 0.6% against the euro.
    • With a little more than two months left before the U.K. is scheduled to leave the European Union, the move slashes the amount of time opposition lawmakers have to pass legislation to stop Johnson's government from pushing through a no-deal departure from the trade bloc on Oct. 31.
    • Lawmakers opposed to a no-deal Brexit will likely have to make their response next week to have enough time to pass legislation, Reuters reports.
    • Carl's Jr. is going international with its Beyond Meat (NASDAQ:BYND) partnership.
    • The chain announces the launch of the Beyond Famous Star with Cheese in Canada. The company calls the Beyond Famous Star a flexitarian take on the restaurant's fan-favorite Famous Star burger, featuring the 100% plant-based patty from Beyond Meat.
    • “After the wild success of the Beyond Famous Star in our U.S. Carl’s Jr. locations and hearing consumer feedback and demand for a plant-based option at our Canada locations, we knew it was the perfect time to add the Beyond Famous Star to our menu internationally," notes CKE Restaurants exec Mike Woida.
    • BYND +1.66% premarket to $159.57.
    • Source: Press Release
    • The Chinese automobile market may be about to turn a corner, according to The Wall Street Journal's Jacky Wong.
    • After recording 13 straight months of declines, the market saw only a 4.3% drop in July in what could be considered a sign the downturn has bottomed out.
    • Beijing is also ramping up pressure on local governments to support the purchase of new-energy vehicles and suggesting that cities consider removing or relaxing their restrictions on auto purchases as part of 20 policy proposals to boost consumption. While the timing of those initiatives is uncertain, they are seen as supportive of demand.
    • Also in the mix, some of the concerns about the overall economy in China could be overstated with GDP slowing to the 6% range. South China Morning Post observes that the Chinese economy will add nearly $900B in new output this year, more than the slower-growing U.S., Europe and Japan combined.
    • Manufacturers have been investing heavily in China despite the volume drops based off long-term demand projections and the expectation for a trade war resolution down the road.

    Macy's: Once More, Buying At A Discount 


  24. Good Morning Phil

    AGNC and  NLY

    Even after the reduction in dividend from a $0.18 to 0.16 monthly, the stock remained in the mid to low 17’s.

    Do you know the reasons for it’s current pricedrop to $15? Would you buy here or is there something fundamentally changed that I cannot figure out? NLY has also dropped, though less on a percentage basis


  25.  What’s fundamentally changed is the Feds stance on money.   That is scaring people away from mortgage REITs, as it will be tough to make money with rates so low and now they are so low that people are able to refinance high-margin loans that they have already written. That impacts their forward projections and the value of their portfolio. If you were just looking for something long-term though, I would ride it out and I really don’t believe rates will stay this low land, even if they do,  I think these guys are smart enough to make money anyway.      


  26. There's 1% on the Dow more than 1% on the RUT, 0.6% on /ES and 0.26% on /NQ.

    • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
    • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
    • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
    • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

    So we just turned the Dow strong and S&P weak from red to black since Monday morning.  Still very range-bound inside the bounce lines and today is another low-volume day so far, probably in the mid 50Ms on SPY when we close.


  27. The Dog Days of August.  Not much going on.  Despite the averages remaining near yearly highs, a whole bunch of stocks are selling at or near multi-year lows. (And I own several of them).

    I decided to create a portfolio of stocks selling below $3, Just For Grins.  I'm going to put a hypothetical $1000 in each one.   They are :

                 Closing Price     Yearly High

    JILL         $1.96                 $6.98

    GRPN     $2.39                 $4.51

    DTEA      $1.40                  $5.35

    AKS        $2.18                   $5.11

    RRD       $2.23                    $6.76

    OPK      $1.78                     $5.99

    CHK       $1.47                    $4.98

    GNC       $1.89                    $4.65

    TUES     $1.39                     $3.45

    QUIK      $ .37                      $1.19

    CBL        $ .87                       $4.53

    FIT         $3.02                      $6.96

    HL         $1.84                        $3.12

    CTST    $1.67                         $11.97

    GUSH    $3.05                       $ 43.77

    Note: This is not in anyway a suggestion to buy any of these very speculative stocks.  Just curious how they'll perform over the next year.  I wouldn't be surprised if the portfolio is down into year's end because of tax selling.  But It'll be interesting, (at least to me), to see how it performs over a 12 month period  Some of them, like CTST and a few others may go bankrupt, and others might do very well.  We'll see.

    Also note that FIT & GUSH closed above $3 as they were both up big on the day.


  28. Good list, we already have a couple I do like Groupon but not sure of value. 


  29. Lord & Taylor sold for $100M to rental clothing company




  30. Trump made 48 false claims in six days





  31. Cut & paste – excuse the caps. 50-100 year bonds? Seems like something NLY could take advantage of it comes to pass.

    "U.S. TREASURY SECRETARY MNUCHIN SAYS ISSUING ULTRA-LONG U.S. BONDS IS UNDER VERY SERIOUS CONSIDERATION"





  32. Good morning! 

    Huge move up simply because China said they wished to resolve the trade dispute with a "calm" attitude.  I've never seen a market move up and down 1% on words before.

    • “We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude,” Gao Feng, spokesman for China’s Ministry of Commerce, says Thursday, according to a CNBC translation of his Mandarin-language remarks.
    • Gao noted the Chinese and U.S. trade delegations have maintained “effective” communication.
    • But he did not confirm U.S. President Donald Trump’s claim on Monday that the Chinese team called the U.S. over the weekend with the desire of reaching a deal soon.

    So that's hitting the headlines but, as I'm sure you read in the People's Daily (Government Publication) this morning:

    US risks losing big for fighting trade war with China

    The trade war has already affected both sides. However, all you need to do is look at the videos of Chinese shoppers crowding the aisles of the Costco store in Shanghai to know that the United States has a lot to gain from greater cooperation with China and a lot to lose if it erects a wall between the world’s two largest economies.

    China saying they firmly reject an escalation of the trade war ahead of Trump's plans to escalate the trade war is not submission – it's a warning that they will fight back!   They still don't have actual talks scheduled so it's all up to whether or not Trump puts the tariffs on next week, which retailers say will ruin Christmas.