Market Meltdown: Don’t watch tariffs. Watch this!
KINGSTON, NY 2 March 2018—The business media is spreading economic propaganda. In unison, they blamed the Dow’s 420-point drop yesterday, and the subsequent plunging markets overseas, on President Trump's announcement that he will impose aluminum and steel tariffs.
Is the business media suffering attention deficit disorder? Or, are they so trapped in their studios, newsrooms and inner-circle cliques that they would all blame tariff-talk for bringing the markets down, forgetting that in early February, equity markets went into a tailspin over fears that the US Central Bank would raise interest rates to contain inflation?
Are two days ago too far back to look?
This past Tuesday, as new Federal Reserve Chairman, Jerome Powell was testifying before Congress, the Dow closed down 299 points over fears that the Fed would aggressively raise interest rates to keep the economy from overheating.
The cheap money flow that juiced equity markets since 2009 is grinding to a halt. And it's doing so at a time when the markets are sharply overvalued and overleveraged.
The price-to-earnings-multiple at 26 times earnings for the S&P 500, compared to a long-term average of about 14 times earnings, demonstrates how the S&P and markets overall have been performing at levels well beyond norms.
In addition to these historic high price-to-earnings-multiples, Exchange-Traded-Funds and money flowing out of managed funds and into index funds are also over leveraged.
A primary factor that will temporarily forestall a market meltdown is President Trump’s generous tax cuts to corporations that will keep them gambling in the markets, which in effect will push earnings-per-share higher.
Trump’s tax plan, which also allows corporations to repatriate cash stored in overseas banks, will further empower companies to buy-back their own stocks. Share buybacks have already exceeded $200 billion in the past three months, doubling the prior year.
TREND FORECAST: Watch gold, the safe-haven commodity in times of economic and geopolitical instability. When equity markets went down in February, gold prices fell with them. Now gold prices are rising as the markets decline. When gold prices solidify above $1,450, we forecast it will signal serious stock market panic, thus driving gold prices up several hundred dollars.