Last Friday, I wrote:

[S]ome sort of trade agreement between the US and China could be announced. Again, I can’t put odds on this, but it wouldn’t have to be much of an agreement to send global markets off to the races. Even an agreement to work harder on getting to an agreement would likely boost markets around the world—including commodity markets.

Well, we saw that in spades this morning. Dow futures were up over 500 points, pre-open. Gold shot up to $1,232 per ounce, and copper, nickel, lead, zinc, and aluminum were all up as well.

When I first saw this, it looked like an overreaction to Trump and Xi declaring a 90-day “cease-fire” in the US-China trade war at the G20 summit over the weekend. But then Trump tweeted that China would “reduce and remove” 40% tariffs on US cars entering China. That’s a concrete and specific step.

If true, and depending on what the US might have promised in exchange, it would count as a major victory for Trump. If the Chinese get something they can call a victory as well, this could be the beginning of the end of the trade war. That in turn would have an immediate, positive impact on natural resources and commodities in general—as well as the entire global economy.

Heady stuff. But I’m not breaking out the champagne yet. As of this writing, China has not confirmed the tariff reduction. The cease-fire itself isn’t really much to celebrate, not unless you were about to get directly hammered by the increased US tariffs that have now been put off three months. But that’s not a long stay of execution.

All that has been officially agreed to is to again try to agree. Given that no significant progress had been made—not until Trump’s unconfirmed tweet—there’s a very high risk of today’s exuberant optimism reversing into deep pessimism if the Chinese deny the auto tariff agreement. And even if they admit they are considering such a move, it could quickly fall apart if it’s evident the Chinese want too much in exchange. For example, they could demand that the US to back their claims to coastal waters of Vietnam, the Philippines, and Brunei.

I’m not trying to rain on the parade—well, perhaps I am, but not for the purpose of being negative. But as I keep saying, it’s not my job to be a cheerleader, not even when investments are going my way. In fact, it’s when markets do suddenly go my way that I have to be most on my toes. I want to make sure I make my investment decisions based on rational analysis, not irrational exuberance. Otherwise, I run the risk of buying at market tops—or even worse, selling at market bottoms.

Key takeaway? Watch this space.

If the US and China really do bury the hatchet, the spring that’s been coiling under resource investments all year should release, propelling us into a fantastic 2019. There’s plenty of time to invest accordingly—once the evidence is solid that it’s actually happening.

Until then, beware of false bottoms disguised by sunny beams of hope in the eyes of investors desperate for good news.

Caveat emptor,

Monday, December 3, 1:33pm, EST, 2018