What the markets have experienced in the past month is truly unheard of, but the reaction to it by Secretary Treasury, Steve Mnuchin, and U.S. President, Donald Trump, is so frantically aggressive in nature that investors are now even more confused.
In the last few days, Mnuchin has made phone calls to heads of America’s six largest banks in order to discuss their liquidity reserves.
I find that insane. Are we to assume that before this phone call, the Treasury department had no clue as to what the biggest banks’ balance sheets look like?
On the flip side, if this is a stunt that is supposed to reassure investors from all across the world, it failed miserably.
In fact, it brought intensified selling on Monday, a day that has never seen more than a 1% drop in U.S. markets history up until now.
As you can see above, we’ve entered a new phase in America’s decline as a nation with a not so powerful middle class anymore.
Domestic holders of U.S. debt have once again been eclipsing foreign ones.
The reason this is so important is because we see this as part of a long-term strategy by the BRIC (Brazil, Russia, India, China and South Africa) nations.
The U.S. is going to need to find lenders to be able to continue meeting its obligations – it’s that simple.
The problem is that Washington’s outgoing payments are either fixed or growing. No current obligation is shrinking. Social Security is ballooning, Medicare and Medicaid are constantly increasing in size, interest payments are getting to a point where they cost $1.5B a day, and with the arms race versus China, defense spending will pick up measurably.
Now you see why Mnuchin and Trump are running around “reassuring” everyone.
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The S&P crashed to 2,351.10, closing below its bear market level of 2352.70, the lowest since April 2017, ending the longest bull market in history. We have seen instances in the past where bull markets dipped below the arbitrary 20% “bear market” definition only to continue rallying further.
Regardless of whether or not stocks rebound sharply from here, there are opportunities right now to buy at attractive levels. Personally, I’m going over a list of 17 businesses that are all $10B market caps and above and who belong to the Dividend Aristocrats group, to zoom in on the ones that I’ll immediately add to my portfolio.
The last time a president encouraged investors to go in head-first to buy corporate America, it was in March 2009, the day of the bottom for the S&P 500 at 666 points.
Obama called the bottom back then.
President Trump is learning that he must inspire confidence in the unity of strategy between his fiscal policies and the Fed’s monetary ones, or face annihilation for his term in office, with no hopes of re-election.
The bottom line is that baked into the valuation cake now, investors have bid stocks down to a point that reflects a wide river between Washington and the central bank, projected in these lower prices.
What we are seeing here is the marriage of politics and investments.
Corporate America is definitely not in a recession, yet the geopolitical indecisiveness with China, the internal woes between Washington and the Federal Reserve, and a combination of events like the G-20 meeting’s unfruitful discussion all played a pivotal role in bringing down the markets.
This is the reason why owning gold is so critical over the long-term.
Research Partner, PortfolioWealthGlobal.com
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