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A Swing and... A Miss

Written by Briton Ryle
Posted September 2, 2019

Yeah, yeah, I know what I said. But you're right to be thinking about the bearish call I made last Wednesday. Maybe it's because I had a cold — but that was about as ass-backwards a forecast as a person can make...

I went back to re-read that piece, you know, just to see how wrong I was... And the answer is pretty wrong. But not totally so. 

As we all know, the stock market moves both ways: higher and lower. And I like to trade both the upside and the downside, both for my personal gain and for my Real Income Trader subscribers. So I regularly check in with the charts. Sadly, I don't always get it right. Like last week...

But my forecasts are accurate more often than not, and Real Income Trader subscribers are averaging right at 30% on every trade we've made this year. 

My bearish take on the action was largely based on the latest breakdown of trade negotiations. Frankly, I should know better than to risk money on the president's latest tweet. At least I shouldn't risk cash on a downside trade... because we've seen the two sides come together after a breakdown several times.

And as you probably know, China signaled its willingness to get back at it last week, which pushed stocks right back toward record highs.

Here We Go Again

Now, I want to expand on one point I made last week:

Now, I'm not personally worried about an imminent recession. Job growth and consumer spending are both pretty darn strong. And I don't see a really good reason they should suddenly reverse. But that doesn't mean the possibility isn't weighing on investors. I mean, you keep hearing "recession" on the news, and pretty soon you might decide it's time to lighten up on stocks.

Ultimately, it may be better for the markets if we do just move on. No deal is likely better than a bad deal. Maybe instead of "I hereby order..." just let companies decide if they wanna do business in China or not? Just a thought...

Seriously, though, if the trade talks simply ended, would it be that bad? At least then we could stop getting jerked around every time the president picks up his phone...

The point about job growth and spending is solid. The U.S. economy is 70% consumer spending — that's the thing to focus on. Sure, I still pay attention to what manufacturing surveys say, but manufacturing represents a pretty small slice of the U.S. economy — about 12%. There's simply no reason to get worked up about weak manufacturing numbers.

What's more, it seems to me that investors have gotten wise to this idea. Because they've certainly managed to avoid taking the bearish bait that I thought they would. And trading is all about figuring out what other investors/traders are going to do.

One final thing and I'll let you go. After all, it's Labor Day, and you've probably got better things to do.

Leaving China

Companies have already started diversifying their supply and moving out of China to places like Vietnam. Great. And that's not going to change just because a trade deal gets done. And it's not going to change if a deal doesn't get done, too. 

As I said last week, I'm not sure it matters very much if we get a trade deal with China at this point. The ultimate cost of tariffs isn't going to sting that bad in a worst-case scenario. And I bet the tariffs mysteriously disappear anyway once the trade talks are done. 

Because the bottom line is that U.S. companies want to do business in China. The president might be able to put the brakes on for a short time. But ultimately, the free market will win, and companies will be free to sell what and where they want. 

There ya go, I'm done. Enjoy your holiday, and I'll be sure to get something long-winded for Wednesday's message.

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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