Back in my former day job it was often suggested that a faltering stock market might be considered a leading or forward-looking indicator of economic contraction. It is difficult to
know what the last couple of weeks of carnage on Wall Street is signaling. For sure there hasn’t been any leadership
from the White house - only excuses and casting-about of blame.
Donald Trump takes no small measure of confidence in the skillful use of chaos to keep his opponents off-balance. Another truism is that the stock market abhors uncertainty. There is a surplus of uncertainty in the atmosphere nowadays. And chaos has no role when truth, stability and a steady hand are called-for.
In the event that a recession develops the profits of corporate America are likely to fall considerably in 2020. Such a decline could force companies to lay off employees and put off new investment. It is noteworthy to know that prior to the coronavirus outbreak domestic business investment had already fallen in the last three quarters of 2019 – largely as a consequence of the Trump administration's trade policy and the continuing imposition of punitive taxes (tariffs) on imported goods. The US manufacturing sector spent most of 2019 in a mild recession. Under normal circumstances recovery would be elusive.
Donald Trump takes no small measure of confidence in the skillful use of chaos to keep his opponents off-balance. Another truism is that the stock market abhors uncertainty. There is a surplus of uncertainty in the atmosphere nowadays. And chaos has no role when truth, stability and a steady hand are called-for.
In the event that a recession develops the profits of corporate America are likely to fall considerably in 2020. Such a decline could force companies to lay off employees and put off new investment. It is noteworthy to know that prior to the coronavirus outbreak domestic business investment had already fallen in the last three quarters of 2019 – largely as a consequence of the Trump administration's trade policy and the continuing imposition of punitive taxes (tariffs) on imported goods. The US manufacturing sector spent most of 2019 in a mild recession. Under normal circumstances recovery would be elusive.
We are in uncharted waters and led by an
individual who is surrounded by sycophants and ideologues selected for their
dedication to a leader who places absolute loyalty above facts and the truth. Perhaps the market is telling us that our president instills an inadequate sense of security during a time of uncertainty. The commander-in-chief was all too happy to
own the market’s peaks over the last few years. He needs to step-up his game now that things have gotten unglued and before they spin out of control.
Stay-tuned....
Stay-tuned....
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My 2 cents:
ReplyDeleteEquity valuations have not been tied to corporate earnings or other fundamentals for many years. There is no honest price discovery since the FED stepped in with QE. 2018's attempt at raising rates showed that the FED is no longer able to back away from the market and let it tend to itself. Raising rates will certainly lead to the folding of many companies due to unmanageable debt-service payments. But for some reason we no longer can stomach allowing these things to happen. Corporate debt is reaching 10 trillion dollars and 1/2 of it is a notch or two above junk status. This is only one of the many systemic weaknesses of the market. The Corona virus is a match dropped an a heap of very dry tinder.
People went to equities because there is no where else to go for yield. Lyft, which had a successful IPO, actually put this in their prospectus: "We have a history of net losses and we may not be able to achieve or maintain profitability in the future." It's worth $10 billion?!
Trump is not going to be able to stop the carnage this time. You can't print your way out of a supply-side problem. I'm guessing the FED is just going to have to step in and start buying equities directly, and then we have abandoned all pretense of having a "fair market".