- Stairs up, elevator down…
- Is Trump doing it on purpose?…
- April 15 is just over a week away! If you haven’t yet, you need to learn about this loophole that can LEGALLY save you thousands in taxes this year
Dear Reader,
The stairs up… and the elevator down.
Investors have endured a dizzying elevator trip of late.
Thursday and Friday registered the greatest two-day plummet since the advent of the 2020 plague… and the 16th greatest ever.
Thus an entire year of stock market gains have vanished at a stroke.
You are one year nearer to the grave.
Yet if you seek your wealth through the stock market… you are scarcely one penny wealthier.
Time is money!
From the Stairs to the Elevator
The president’s tariffs are naturally the villain of this harrowing journey.
They threaten to make the global trading lanes scenes of chaos.
The technology sector — with its global supply links — has absorbed an especial whaling.
And since a select number of technology stocks had been hauling the market up the stairs… when they transitioned to the elevator… the rest of the market piled in with them.
Thus the risk of such a “top heavy” stock market.
When the wagon-pullers take a stumble, there is no one to take up the burden.
A MAG 7 Problem?
Treasury Secretary Bessent believes the tumults did not originate with tariffs.
He believes they originated instead with the debut of China’s “DeepSeek” artificial intelligence contraption in late January:
- For everyone who thinks these market declines are all based on the President’s economic policies, I can tell you that this market decline started with the Chinese AI announcement of DeepSeek.
- If I were to analyze in my old hat, and this is the only time I’m going to talk about it, … what’s happening with the market I’d say it’s more a Mag 7 problem, not a MAGA problem.
MAG7 refers to the seven leading technology stocks that had been hauling the market cargo.
DeepSeek, meantime, appears to represent a far cheaper artificial intelligence platform.
And let the record indicate: the stock market began to wobble shortly after DeepSeek’s issuance.
Mighty NVIDIA, for example, has taken an awful spill since late January.
If Not Tariffs, Might Something Else Have Triggered the Rout?
Were the president’s tariffs mere accelerants — rather than initiators?
If not tariffs, might a separate development have driven stocks into the elevator?
Market commentator Quoth the Raven:
- This sell off was gonna happen one way or the other. With rates where they are now, it was a mathematical certainty that the economy was going to slow and that the market would eventually have to correct.
- There’s no mystery as to why Warren Buffett raised his cash pile to $330 billion just two months ago. He did it because the market was, on any historical valuation metric possible, extraordinarily overvalued.
- The Shiller price-to-earnings ratio was at its third highest level in recorded history, second only to right before the housing crisis and right before the 2000s tech bubble.
- To the layperson, this means that going into this tariff announcement, stocks were almost the most aggressively valued they have ever been in history.
The quoted Raven is correct. Stocks had been fantastically — dare I say obscenely — overvalued relative to history.
And as this fellow observes:
Even after the harrowing elevator journey, the S&P 500 remains some 40% above historical par.
Isn’t Gold the Safe Haven?
Gold, meantime, herded into the elevator with stocks late last week.
Why? Is not gold the “safe haven” asset to which investors cling when trapped inside the plunging box?
Freedom Financial News contributor and The New Case for Gold author Jim Rickards holds out the answer.
He argues that in a plunging market, investors must locate cash to meet their margin calls. Gold is a highly liquid asset easily sold.
And so investors sell their gold to scour up the cash required to meet their margin calls.
Yet once the panic passes, Mr. Rickards argues, investors flock back into gold at the bargain price.
This we are presently witnessing. Gold is presently on the jump.
Time to Buy the Dip?
One question of course dangles anxiously in the air:
Is it time to “buy the dip?”
For years, investors have found buying the dip a highly juiceful strategy.
Yet the answer to the question is no, says famed money man Mr. Bill Gross.
Investors who attempt to catch a steal may instead catch a sharp, sharp blade:
- This is an epic economic and market event similar to 1971 and the end of the gold standard except with immediate negative consequences…
- Investors should not try to ‘catch a falling knife.
Reinforcement
Ritholtz Wealth Management chief executive officer — Mr. Josh Brown — is with him:
- I think this is going to be a sell-the-rip environment, not a buy-the-dip environment. And I wish it weren’t.
Mr. David Mazza, chief executive officer of Roundhill Investments likewise counsels caution:
- Buying the dip now is like buying discounted tickets to a show without knowing who’s performing. Unlike the recent path when buying every dip was reliable, the heightened uncertainty of tariffs and trade policy means investors could end up with either a blockbuster or a flop.
I wager on the flop theory — on the plunging knife theory.
Of course… I may be mistaken. I offer you no counsel but your own.
Is Trump Actually Trying to Engineer Recession?
Meantime, yields on the 10-year Treasury note have taken to swift retreat.
4.80% in mid-January, the bellwether asset presently yields 3.93%.
Retreating yields indicate, generally, lean economic times to come.
In many instances, recession.
There are those who suggest that the president may inwardly seek recession.
Why? Explains Business Insider:
- By causing economic chaos, he could be trying to bring down interest rates, which would allow the US to essentially refinance its debt at a much cheaper cost and prevent debt levels from spiraling to even further extremes.
- Because interest rates soared thanks to the 2022 inflationary environment, interest payments alone on US debt are projected to cost almost $1 trillion in 2025, according to the Peter G. Peterson Foundation. That’s around 13.5% of the government’s budget this year.
- But if the economy were to go into recession, the Fed would presumably cut interest rates significantly, and investors would flock to risk-free 10-year Treasury notes, pushing down their yields — and, therefore, the amount of interest the government pays on the borrowed money.
Not 5-Dimensional Chess
I do not embrace the intentional chaos theory.
I embrace instead the unintentional chaos theory.
I do not believe the president plays dimensional chess.
I believe he merely plays the game he believes advantages him.
That game reduces more often than not, in my estimation, to checkers.
Don’t Count on a Silver Lining
Yet does the gathering recessionary gray cloud offer its silver edging?
The United States economy may descend into dreaded recession, yes.
Yet at least servicing the nation’s debt would represent a lesser burden.
Hence the silver edging.
Of course, recession translates to reduced economic productivity.
That reduced economic productivity — in turn — translates to reduced revenue available for debt service.
Thus the cloud’s silver edging fades into nonexistence, washed out and negated.
Are you prepared for a gray future?
Brian Maher
for Freedom Financial News
