KINGSTON, NY 4 April 2018—Last Fall, we were the first to forecast that in 2018 the Trump Rally would end and there would be a market correction.
We warned, however, that considering how overleveraged and overvalued the markets were, and growing fears of the Federal Reserve aggressively raising interest rates, a wild card event would accelerate the correction into a market crash.
And we said there was "no greater a wild card than the Trump Card."
That card is being played.
Today, the Dow futures tanked over 500 points on the news that China, in retaliation to President Trump's threat to levy $50 billion in tariffs against them, would in turn impose $50 billion in tariffs against the US.
While the escalating trade war was the trigger point for the market downturn, what is being lost in this "Breaking News" coverage are the trend lines that, absent the tariff battle, had already lowered the markets into correction territory.
But the media continues its hyper focus on the one-reason-a-day why markets move, while largely ignoring fundamental trend lines.
For example, what was the headline reason for the Dow diving 750 points on Monday and then closing down 459 points? "It was the Chinese, stupid!" Here is a sampling of the headlines that morning:
- Dow Jones Drops Almost 460 Points On News Of China Tariffs - Eurasia Review
- Markets tank as trade war concerns rise - CNBC
- Stocks tumble on trade war fears - Wall Street Journal
- China tariff wars drag market down - Bloomberg
However, after the markets closed, the business media dropped its China narrative. This was the headline splashed across the front page of Tuesday's Wall Street Journal:
"Tech Stocks Slide Amid Backlash"
Shares of the biggest names in the technology industry extended their three week decline Monday, raising fears among investors that cracks could finally be appearing in what had been one of the most enduring trades of the past year. (WSJ, 3 April 2018)
Yes, the true reason equities sank was the same reason the Dow fell 1.4 percent and the Nasdaq fell 2.9 percent last Tuesday: Markets are overvalued and overleveraged, especially in the tech sector which was up 23 percent year-to-date.
Moreover, assessing the macro economy at large, consumer, corporate and public debt is rapidly increasing. And, as interest rates rise, the massive debt burden will become even more unmanageable, posing yet greater market dangers ahead.
TREND FORECAST: While our concerns over market volatility have increased, a key indicator that we have long relied on, gold prices, are not yet flashing "Market Crash." Even today, when Dow futures were plunging, gold prices rose, but not dramatically.
And, despite downward market trends, gold has not been able to pierce our first breakout point of $1,385. Further, when gold breaks solidly past $1,450, we forecast it will quickly move toward $2,000 per ounce.