One thing that you have to appreciate about Donald Trump is that unlike most politicians, he actually says what is on his mind. On Tuesday, Trump told Fox Business that he had already gotten out of the stock market, and that he foresees “very scary scenarios” ahead for investors. And of course things have already started to get a bit ominous for those holding stocks over the last week and a half. The Dow Jones Industrial Average has now closed down for seven days in a row, and that is the longest losing streak that we have seen since the panic of last August. Over the past 12 months we have seen virtually every other major global stock market experience at least one major crash. Could the U.S. markets be next?
What Trump told Fox Business earlier today was actually right on the money. Our financial markets have been artificially inflated by the Federal Reserve, and all artificial bubbles of this nature eventually burst. The following comes from a Bloomberg article that was posted on Tuesday entitled “Trump Urges Exit From Market Boosted by ‘Artificially Low’ Rates“:
Donald Trump on Tuesday said interest rates set by the Federal Reserve are inflating the stock market and recommended 401(k)-holders to get out of equities, just like he did.
“I did invest and I got out, and it was actually very good timing,” the Republican presidential nominee said in a phone interview with Fox Business. “But I’ve never been a big investor in the stock market.”
“Interest rates are artificially low,” Trump said. “The only reason the stock market is where it is is because you get free money.”
Trump’s comments come at a time when we are getting a whole host of bad news about the U.S. economy. We just learned that U.S. GDP grew at a meager 1.2 percent annual rate during the second quarter, the rate of homeownership in the United States just hit an all-time record low, and corporate earnings have now been falling for five quarters in a row.
But perhaps most alarming of all is what is happening to the price of oil. As I discussed yesterday, the price of oil has plunged well over 20 percent since June 8, and it was down again on Tuesday.
As I write this article, the price of U.S. oil is sitting at just $39.66. The psychologically-important 40-dollar barrier has been broken, but the price of oil doesn’t even have to go down another penny to do immense damage to the U.S. economy. If it just stays at this price, we are going to bleed more energy industry jobs, more energy companies are going to default on their debts, and more financial institutions that are exposed to the energy industry are going to get into serious trouble.
All the ingredients are there for a major financial crisis, and perhaps that explains why so many investors are flocking to precious metals such as gold and silver right now.
The price of gold has gone up for six trading days in a row, and silver is approaching 21 dollars an ounce.
Meanwhile, things continue to unravel on the other side of the planet. In Europe, let’s just say that the recent bank stress tests did not go as well as many were hoping…
If the goal of the EBA Stress Tests was to reassure investors and regain confidence that ‘all is well’ in Europe’s increasingly fragile and systemically interconnected banking system, then it has utterly failed. The broadest European bank stock index is now down 7% from the post-stress-test spike highs, Italian banks are at record lows and being halted (despite Renzi’s promises), Commerzbank is struggling with capital raise chatter, and Deutsche Bank and Credit Suisse are tumbling after being booted from the Stoxx 50.
It is funny—every time I write a major article about Deutsche Bank, their stock goes to a new record low.
And it has just happened again. Less than a week ago, I posted this article, and on Tuesday Deutsche Bank plummeted to a brand new record low as renewed fears about the health of the bank spooked investors.
Problems at Deutsche Bank and Credit Suisse are now becoming so obvious that even mainstream analysts are admitting that they are “causing some anxiety”…
“Deutsche Bank and Credit Suisse … are dropping to where they were after the Brexit vote,” said Bruce Bittles, chief investment strategist at Baird. “That’s causing some anxiety.”
Deutsche and Credit Suisse’s U.S.-listed shares closed down 3.75 percent and 4.67 percent, respectively.
In Europe nobody is waiting for financial stocks to crash, because they are already crashing.
A “too big to fail” crisis is rapidly unfolding across the entire continent, but most Americans are totally oblivious to what is going on over there. Instead, our major news outlets are feeding us an endless barrage of negative headlines about Donald Trump and a steady stream of positive headlines about Hillary Clinton.
I wonder who they want to win the election?
Of course I am being sarcastic. The days when the mainstream media at least pretended to be “independent” are long gone.
But as far as the stock market is concerned, I am quite confident that Donald Trump will be vindicated.
And if you don’t want to believe Donald Trump, I would encourage you to consider what Jeffrey Gundlach, the chief executive of DoubleLine Capital, has been saying. He has been right about the markets in recent years over and over again, and just a few days ago he publicly stated that “stocks should be down massively” and that now is the time to “sell everything“.
Unfortunately, very few people are likely to change course at this stage. Most of those that could see the warning signs have already gotten out of the market, and those that prefer to have blind faith in the system are not likely to listen to warnings from men like Trump and Gundlach.
So now it is just a waiting game.
We shall see if Trump and Gundlach are right, and those that end up on the correct side of the equation are probably going to make a boatload of money during the months ahead.
