Hello, world, hear the song that we're singin'

C'mon get happy!

A whole lot of lovin' is what we'll be bringin'

We'll make you happy!

Theme Song: Come on Get Happy, The Partridge Family

Yesterday, I got a chance to interview Peter Navarro, Assistant to the President and Director of the Office of Trade and Manufacturing Policy, on trade talks and the administration’s maximum pressure approach. He danced around a lot about the timing of the administration hitting multiple Chinese technology companies over the treatment of the Muslim population. I agreed it was the right thing to do. However, I made the point that the timing wasn’t a coincidence.

He demurred and deflected, suggesting it was just a coincidence. 

It doesn’t matter if the administration says there was no connection to trade talks. That’s how Wall Street took the news, and it’s obvious China gets the message. This action opens the door to bring Hong Kong into the equation. To compound the issue further, the admission later announced it would restrict visas of Chinese officials involved in the re-education of Uyghurs. That announcement slammed any chance of recovery. 

Throughout the interview, Navarro suggested the market should be “bullish.” His cavalier attitude would have been heeded if he would have given me more serious and consequential answers.  I just couldn’t get it out of him, as he repeated talking points from previous interviews. The administration has a great chance to counter misinformation when they send out members, but this time, Navarro didn’t help.

I commend the fight the Trump administration is taking to China over their unfair trade practices. They should be called out on human rights abuses, but the communication with the American public is still disappointing. The experts have been wrong about the trade war; some out of professional pride, and others to preserve the status quo. Nonetheless, the public is ready for this fight.

At some point, however, there will be noticeable pain, and it shouldn’t come as a surprise to folks that were told trade wars are easy to win. I’ve known Navarro for a long time, and he is a true trade warrior. Many people are concerned, and it’s not enough to tell everyone to simply be bullish. And yet, he did drop a few vague hints at some good news for investors coming from these trade talks.

The Message of the Market

The market breadth was decidedly bearish, although the overall volume mitigated the lopsided scales.

Note: advancing issues in the NASDAQ were the sixth lowest session of 2019.

NYSE

• Advancing Issues: 749
• Declining Issues: 2,199
• Up Volume: 452 million
• Down Volume: 2.6 billion
• New Highs: 67
• New Lows: 92

NASDAQ

• Advancing Issues: 706
• Declining Issues: 2,413
• Up Volume: 383 million
• Down Volume: 1.5 billion
• New Highs: 19
• New Lows: 132

Yesterday’s session told you everything about the market and the psyche of investors. They are buyers on positive trade and accommodative Federal Reserve news, and sellers when those things are going in the opposite direction. That’s cut and dry - but how to measure the slightest nuances is a little more difficult and we saw that as well.

While semiconductor names were impacted by the latest administration salvo as China weighed down Technology, Financials, and Health Care were hit harder.

Financials were led lower by regional bank stocks: SVB Financial (SIVB) and Citizens Financials (CFG), asset managers Ameriprise (AMP), and Affiliated Managers (AMG). 

Health Care was led lower by diagnostic and research names Waters Corp (WAT) and PerkinElmer (PKI).

S&P 500 Index	-1.56%
Communication Services (XLC)	-1.62%
Consumer Discretionary (XLY)	-1.05%
Consumer Staples (XLP)	-0.95%
Energy (XLE)	-1.71%
Financials (XLF)	-1.98%
Health Care (XLV)	-1.90%
Industrials (XLI)	-1.54%
Materials (XLB)	-1.75%
Real Estate (XLRE)	-0.48%
Technology (XLK)	-1.83%
Utilities (XLU)	-0.93%

Jay Powell Takes a Shot

So, I’m watching Federal Reserve Chairman Jay Powell speak at the National Association for Business Economics (NABE) gathering, and I see that the stock market made a remarkable reversal from earlier lows. The Dow, which was down 330 points, rallied down 50 points when Powell took a very thinly veiled shot at President Trump.

When asked about carrying around the biography of Paul Volcker, the Fed chair under Jimmy Carter and Ronald Reagan, Powell pounced.  He reminded everyone that Paul Volcker implemented policies that were initially very painful to the public, and they let him have it, including shouting at him as a Washington Bullets basketball game played.

Powell stated he did what he thought was the right thing all the time, and as a result, was a “great man.”

He directed a shot at his critics, especially the one occupying the White House as saying, “pound sand.”

Powell seems to be taking great joy with increasing indirect shots at President Trump. It didn’t make the market feel good, as the Dow Jones Industrial Average crumbled 150 points faster than the audience could get their chuckles.

Meanwhile, Powell is going to buy treasury assets, but don’t call it Quantitative Easing (QE) because of its short-term securities versus longer durations…but it is going to swell reserves back toward $2.8 trillion (September 2014 peak).

Powell acknowledges the lack of cash that’s driving the Fed move to build reserves is also an admission of temporary emergency measures (see below). However, it’s not enough to mitigate the risks of the financial system running out of cash. 

Operation Schedule and Parameters

OPERATION TERM	OPERATION DATE	OPERATION TIME (ET)	SETTLEMENT DATE	MATURITY DATE	MINIMUM BID RATE	PROPOSITION LIMIT	AGGREGATE OPERATION LIMIT
Overnight	10/9/2019	8:15 - 8:30 a.m.	10/9/2019	10/10/2019	1.80 %	$10 billion	$75 billion
Term	10/8/2019	8:00 - 8:15 a.m.	10/8/2019	10/22/2019	1.84 %	$7 billion	$45 billion
Overnight	10/8/2019	8:30 - 8:45 a.m.	10/8/2019	10/9/2019	1.80 %	$10 billion	$75 billion
Overnight	10/7/2019	8:15 - 8:30 a.m.	10/7/2019	10/8/2019	1.80 %	$10 billion	$75 billion
Overnight	10/4/2019	8:15 - 8:30 a.m.	10/4/2019	10/7/2019	1.80 %	$10 billion	$75 billion
Overnight	10/3/2019	8:15 - 8:30 a.m.	10/3/2019	10/4/2019	1.80 %	$10 billion	$75 billion
Overnight	10/2/2019	8:15 - 8:30 a.m.	10/2/2019	10/3/2019	1.80 %	$10 billion	$75 billion
Overnight	10/1/2019	8:15 - 8:30 a.m.	10/1/2019	10/2/2019	1.80 %	$10 billion	$75 billion
Overnight	9/30/2019	7:45 - 8:00 a.m.	9/30/2019	10/1/2019	1.80 %	$15 billion	$100 billion
Term	9/27/2019	8:00 - 8:15 a.m.	9/27/2019	10/11/2019	1.85 %	$10 billion	$60 billion
Overnight	9/27/2019	8:30 - 8:45 a.m.	9/27/2019	9/30/2019	1.80 %	$15 billion	$100 billion
Term	9/26/2019	8:00 - 8:15 a.m.	9/26/2019	10/10/2019	1.85 %	$10 billion	$60 billion
Overnight	9/26/2019	8:30 - 8:45 a.m.	9/26/2019	9/27/2019	1.80 %	$15 billion	$100 billion
Overnight	9/25/2019	8:15 - 8:30 a.m.	9/25/2019	9/26/2019	1.80 %	$10 billion	$75 billion
Term	9/24/2019	8:00 - 8:15 a.m.	9/24/2019	10/8/2019	1.85 %	$5 billion	$30 billion
Overnight	9/24/2019	8:30 - 8:45 a.m.	9/24/2019	9/25/2019	1.80 %	$10 billion	$75 billion

After the Close

Earnings from Levi Strauss (LEVI) beat consensus on top and bottom lines, but management warned of a negative impact from the strong U.S. dollar, which erased the initial pop in the share price.

FireEye (FEYE) gave preliminary revenue numbers, sending shares higher.

Today's Session

Futures surged on reports of China wanting a partial trade deal despite all the actions by the Trump administration. 

Comments

I saw the interview you were persistent. If Navarro is in the room he thinks he is the brightest guy there. I disagree he is very arrogant and divisive. I wish Jay Powell would just be quiet .😃 Larry Hayes on 10/9/2019 10:44:53 AM

I've battled Peter for years on the air over many issues including the use of tariffs.  I came around on China because traditional statecraft hasn't work and in fact was abused by the Communist government.   That said I'm not sure Peter is looking for complete decoupling with China not just tariffs to curb their abusive behavior.  I was clearly frustrated with his talking points.  He had a great platform to make news rather than complaining about the "fake" news.  Yes, why are members of the Federal Reserve talking damn near everyday?  Please stop. Charles Payne on 10/9/2019 10:56:16 AM

I would agree with Navarro on avoiding perpetuating that strong link between trade and human rights abuses in this specific Chinese case if only because it will distract most people who are mainly focused on the stock market who would want to instinctively insert a morality cost for stock valuation... Andrew B Newallo on 10/9/2019 12:05:40 PM

If we want a long-term China solution, we have to be prepared to accept a short term whack to the market. If, like the NBA, we are only focused on growing market levels (profits) at the cost of our souls, then we will not be remembered as a great generation that was willing to sacrifice for others. Lew Harris on 10/9/2019 4:43:16 PM

The trthe presidentade deal should come in February. Why? Because that's when the rhetoric for 2020 elections will really ramp. If Boeing is airborne, and there's a halfway decent deal which would be face saving for the President, the impeachment rhetoric will be gone. Potus can then focus on the D's denying the public the benefits of Mexico and Canada D's are depressing the steel industry and agriculture. Betsy Berk on 10/10/2019 7:35:52 AM

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