The market is always right, so they say, but sometimes the market takes some time to come up with its conclusion. It extreme times and these are an example, it can take time for people to adjust to the circumstances and as the market is made of people, the market also takes some time to fully price in what has and is happening. A model for this is Elizabeth Kuber-Ross’s ‘Cycle of Grief’: Denial, Anger, Bargaining, Depression and Acceptance. A quick dip into the mire of X/Twitter and you can see the Denial and Anger in full swing and increasingly the bargaining of ‘if, if, if.’ My model is that a lot of people not only haven’t got the memo of what is really going on but also haven’t calibrated the consequences of what is happening, obvious and explicit.
Imploding the capital base of America will make nothing great again, but there appears to be a level of denial of the consequences of wrecking the capital base of America that has yet to land in the price of stocks and their indices.
The call is simple. Is the administration serious about their revolutionary policies and will they follow through? I say yes. So, lets calibrate. Here is a sobering chart.
If the US market is crippled and adjusts to a level of robustness or lack of, more accurately, this is the picture.
That’s right the UK market is back down to the pre-covid crash levels now and is a good approximation of a shattered market.
The US stock market miracle totalled north of $50 trillion before this situation. 25% of that has gone poooof! Even at this stage, that is an economic disaster.
More to come? Its hard to imagine the impact of more.
There is a glimmer of hope, but only a faint glimmer. DOGE might come off the rails as Musk seems headed for the exit. However, that Kraken is unbound and won’t need him to carry on kicking the legs out from under a trillion dollars of stimulating spending. I ignore the rights and wrongs of that spending, I simply calculate the impact of $1tr less spending. On its own it might be a great thing, but as one of a series of seismic actions, if too much for the economic organism to bear. Meanwhile the second horseman is off in Panama whipping up yet more instability, so basically there is one question.
‘What turns this around?’
To me the answer is: nought. So now its just guessing the bottom and the time period of that bear market. My guess is two years and 50%+ but it is just that, a guess.
This outcome is not fate, but the doubling down tariff strategy we have just seen, with 100%+ tariffs on China, is not a recipe for a recovery. Meanwhile the trajectory which the US and world economy is on, will create an epic global dislocation with currently massive and unfathomable costs.
The funding for this US onshoring and industrial restructuring strategy, will not come from a cratered stock and bond market, as the funds simply wont be there to pay for it. So what then?
The market will tell you whether there is a good or bad road ahead, while Gold will tell you whether there is worse news than merely multiple upcoming economic shocks approaching.
These next few weeks will be crucial to the next 10 years.