In a culture where the phrase “market forces” was a mantra for “no ideas,” the phrase has become mystic, and the lack of ideas is pervasive. Markets are manipulable, overhyped, and usually overvalued.
The markets are usually particularly unreliable as predictors of anything much. Big investment money tends to react too slowly to new things and is very risk averse. That slowness to react is turning ugly.
2008 was an exception. The markets caught up with reality, a very rare event since the Greed is Good psychoses. The markets had to call it like it was. A huge volume of worthless securities decimated Middle America. Fortunes were made but mostly lost in the retail investment sector.
There’s a big but nasty-looking difference this time. This is the whole economy in play, and the stakes are much higher.
The big drops in recent days, notably the NASDAQ, are NOT the same thing. The usual suspects. Nvidia, Tesla, and Amazon took a lot of damage and took the index with them. A lot of real money went with them.
Now consider:
All three stocks are hyper-sensitive and oversold to the market.
They all have specific issues. They typically move more than any other stocks with a few exceptions.
Nvidia has been super-hyped on the basis of future earnings from new AI chips. Tesla’s market image has been almost completely destroyed by its demagogue-in-chief.
Amazon is the top storey of the retail market, and retail is under tremendous pressure. The consumer market is shrinking thanks to massive increases in prices across the board. The retailers are trying to dodge the bullets, and not succeeding.
Of themselves, these stocks are usually pretty neurotic and no basis for prophecy. The underlying reason for the moves is more worrying. The massive instability and visions of chaos created by the new administration are extremely disruptive. Nobody has a clue what the future Federal budget will be like. Big job losses and highly questionable numbers don’t do much to reassure.
More Federal debt isn’t exactly popular. It could also be dangerous, and if the cost of borrowing goes up, major defaults are quite possible. The credit market could react badly to a $4 trillion Federal debt ceiling over any time frame. Who wants to lend that sort of money? Who’s paying for it? The US could well have already shut itself off from foreign lenders as well.
Trade is looking particularly bad. Reciprocal tariffs will also hit US exporters. Importers now have new 25% margins to find in their markets to make a profit.
Who has 25% profit margins to absorb the tariffs? Nobody who’s doing business legally. When importers and exporters are both hit with extra big costs, it’s no surprise who pays. The consumer market is too broke to afford it.
The likely result is uncontrollable and unavoidable deflation. That’s the bad kind of deflation. If you manage your own price moves, you can control it, but that’s almost impossible now. Forget “growth” in this environment.
You can’t run any economy on tantrums. This hysteria is going to cause severe insecurity and cost very big money throughout the US economy from top to bottom.
That means everybody loses.
Even the Mafia could go out of business as the hard cash dries up. You can’t even lend loan shark money to people who’ll probably never have any money.
So – Have the markets got it right? This is where it gets complicated. The really big US capital is now in play, and it has never liked any sort of risk. It’s not happy about having to wake up and pay attention.
There’s more to this idyllic Beatrix Potter-like picture of utter lunacy. The US property market, the multi-trillion sacred cow of US capitalism, isn’t looking very safe. Florida and California are looking iffy. One look at the property market headlines will tell you that nobody’s trying too hard to predict what happens next.
Will there be a stock market crash? There definitely will if the big investors bail out to dodge losses. That money can easily go offshore to a safer and saner environment, where it will be very welcome.
All of the above equate to one thing.
The key US economic fundamentals are far beyond lousy across all sectors and clearly deteriorating.
These market moves could be the first whimper of a real collapse. Let’s hope not.
___________________________________________________________
Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.
