Stock Market

It’s a Matter of “When”

By David Stockman  |  May 7, 2019

Europe today is a powder keg and the leaders are like men smoking in an arsenal. A single spark will set off an explosion that will consume us all. I cannot tell you when that explosion will occur, but I can tell you where. Some damned foolish thing in the Balkans will set it off.

– Otto von Bismarck,
“Speech to the Congress of Berlin,” July 1878

Stocks rallied off yesterday’s lows, with the Dow Jones Industrial Average closing 277.86 points higher than where it opened.

Of course, the Dow opened 344.33 points below its May 3 close. Not even the promise of fresh rate cuts and renewed bond-buying by our monetary central planners could close the whole gap.

Monday was just another part of the process of “Peak Trump.” Today is, too. And we’ve seen the Dow sink as much as 401.20 points from where it opened the day – 562.78 from where it closed yesterday.

The widening “gap” is about China – including the on-off-on-off Trade Deal.

Here’s Jim Cramer, Bubblevision’s original breakout star, on Twitter last night:

Let’s be sure: the tariffs are coming. They will be raised on Friday.. The president likes the money that comes in from them… Even if you think that’s misplaced.

So, will the BTFDers show up again this afternoon for another late-day rally?

Well, the Dow has climbed more than 50 points above the current intraday low a little more than two hours before the bell rings at the New York Stock Exchange…

It doesn’t matter.

Stupidity reigns on Wall Street, the likes of which is matched in Imperial Washington. Surrounded by every kind of economic headwind and political incompetence imaginable, traders, speculators, and robo-machines march on…

They’re headed straight for the end of the Everything Bubble.

Look, if Beijing wants to be inhospitable to foreign capital, that’s a sovereign prerogative. And it’s also their loss. Autarky plus protectionism has never been a combination for prosperity.

There’s also this: No one is forcing U.S. companies to operate in China. They go there voluntarily to open new markets and to brag on CNBC about gangbusters growth. If the inconvenience/costs outweigh the benefits, they only need do what capital has ever done: Depart for greener shores.

But the Donald has been hoodwinked into enforcing an Imperial Washington-focused statist industrial policy. Here it is, from the report of an investigation conducted based on Section 301 of the Trade Act of 1974 that is founding document of the Trade War (emphasis mine):

The National Association of Manufacturers (NAM) stressed the negative effects of China’s technology transfer regime on U.S. companies’ global competitiveness:

This tilting of the playing field leaves manufacturers with untenable choices: they must either transfer their technology to the new China-based joint venture, or they must cede the world’s fastest-growing market to foreign competitors, thus harming both their short-term growth and long-term competitiveness.

There you have it: Imperial Washington’s policymakers are to scour the global economy to ensure everywhere and always the rules of the game meet with the approval of U.S.-based companies and their K Street lobbies.

This takes crony capitalism to a whole new level.

And it will do very little to close America’s giant merchandise trade deficit… or bring back the jobs and production offshored by three decades of monetary central planning.

What’s really going on right under the Donald’s generally inattentive noise is that staffers are erecting a new trade nanny bureaucracy.

When he discovers he’s been sold a bill of goods, the China Trade Deal will blow sky-high in a tweetstorm of global proportions.

I wonder what the market will look like on that day…

In Case of Emergency

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR