My daydream coming true?

This is how I was called about when I posted my blog on a "conspiracy theory".😠😠 If you haven’t read it, here is the key point: According to this theory, Trump is just trying to help Republicans to win the mid-term election. Here is how it works: Trump to start the tariff fight with all the major partners and make it escalated to the level of trade wars. The market got nervous enough to tank and be very volatile for a few months, just like what we are seeing now. Then all the sudden Trump starts to seal some major trading deals prior to the Nov election, which will make the depressed market so happy that it will start to jump to the extent of euphoria. The result? We will see new highs later in the summer and people are so elated that more people will vote for Trump’s party, Republican. And both houses will still be controlled by GOP! What a perfect conspiracy theory! Very logic actually! Sounds like a fiction, right? No wonder my friend said I was having a daydream. Well, it looks like my daydream may very well become true now. Actually it seems to come much earlier than I thought.😎😎 In case you don’t know yet, Trump and the European Commission President Jean-Claude Juncker reached an agreement on Wed to work on a trading deal aiming for zero tariffs, barriers and subsidies. While details are yet to be worked out, this is major breakthrough to avoid a real trade war between US and EU. And there is a good chance something will also be worked out with China in the months ahead.

As I said, if you really understand Trump’s underlying intention, this is a very logic step forward for him to do. He has been called as a trade protectionist all around the world. But in reality in my view, he is much more for free trade than any other countries’ leaders! All he wants is to level the playground and be treated fairly and reciprocally in his words. That’s why he offers the idea of zero tariffs to promote real free trade between countries. I hope we will see such a more free trade world in the future.

To give you a quick trick how to assess a real trade war risk. You don’t need to look too much beyond one indicator: the US dollar! Relatively speaking, US$ is a safe haven, especially during the market turmoil due to the fear of a major trade conflicts. If a real trade war is coming, US$ will be among the first beneficiary to strengthen. I think this is one of the major reasons why US$ has gone up so much in the past few months. But look at its chart below (using UUP), apparently it has topped in the past few weeks and a downtrend appears to be in the work. If it indeed topples over from here, clearly the risk of trade war will become more and more remote. That’s how the market is telling us the likelihood of trade war.