You don’t have to subject investors to analysis to see how anxious they are. Hanging on every tweet, scrap of economic evidence, and extrapolation, they react with alarm one day then relief the next. It isn’t the current state of the economy or business activity that counts but concerns about an end to the good times. “Yes, everybody knows it’s pretty good now, but what’s coming?” The trade war with China seems never-ending. The yield curve is inverted. There are also many other international concerns.

Exacerbating the daily moves are thin markets, algorithmic (computer) driven trading, and huge international movements of liquidity. August usually has light trading because so many investment professionals take vacations and spend more time with their families. So, there may be far fewer participants on any given day leading to less liquidity or thin markets. In thin markets, quick trades that computer algorithms make have greater impact.

The U.S. continues to be a haven, so our bonds and equities are attractive to many other investors around the world. Bonds especially benefit from international flows because our interest rates are more attractive than those of many of our trading partners. As a result, there are positive and negative forces acting on stocks and bond prices.

The push-pull in markets is likely to continue. The Bull has stated that probabilities and logic indicate that some resolution to the trade war with China is likely – we shall see. In the meantime, the money flows that the Bull follows have been deteriorating, but still positive. It is certainly a tricky environment, but not unmanageable. Opportunity and risk are two sides of the same coin. The Bull is looking hard to find both. Stay steady my friends.

The Lonely Bull