In a rather wild sequence of events this past Friday, a flurry of news indicated that we might be getting a bit closer towards the collapse of the stock, bond, and real estate bubbles.
Consider some of the following CNBC screenshots from Friday, beginning with the release of the March labor report.
The non-farm payroll figure for March came in at 103,000 vs. an expectation of 193,000.
Not a small miss.
Perhaps it’s still early, with one report not being enough to determine a trend. But given that this is exactly what you would expect in a rising-rate environment following a decade of monetary easing, it’s likely to not be a purely random coincidence either.
Also worth noting is that “in addition to the weak March growth, January’s total was revised down from 239,000 to 176,000, though February got a boost from 313,000 to 326,000.”
Again, one month of data is not enough to say that the bubble is popping. Especially when we’re referring to data as flawed as what the Bureau of Labor Statistics produces. But it sure is interesting to see the weak data at the same time rates are going up.
Ironically, just a few hours after the report was released, Federal Reserve chairman Jerome Powell was giving a speech in Chicago, where he indicated that growth is still steady enough to justify further rate hikes.
So despite the labor report and an escalating trade war with China, it appears as if the Fed is still going forward.
As a result, the stock market was getting pummeled (with the Dow finishing 572 points lower). While even CNBC was pointing out how China has the ultimate trade war weapon in the form of its ever present ability to stop buying U.S. treasuries.
Although that did little to deter Treasury Secretary Steve Mnuchin from mentioning that while a trade war with China is not the objective, it is a possibility.
Mnuchin explained that, “China responded with a $50 billion (tariff) against us. We think that was unfairly targeting our industries. That’s 38% of what they buy from us. So as a result of that the president responded with potentially another $100 billion (in tariffs).”
Which is incredible in its own right. Because when the White House initiated a trade war against its largest creditor, how exactly were they expecting the Chinese to respond?
So to recap, the stock market is melting down again, the Fed is indicating it’s going to continue raising rates, we’re seeing more signs of weakness in the labor and housing markets, and the U.S. is responding by escalating a trade war against its largest lender.
It’s such a baffling sequence of political and economic events that you almost have to hope there’s something else going on behind the scenes that we’re simply unable to see at this point. There’s a school of thought going around that Trump is actually engaged in an effort to take down the Deep State, and that some of what we’re witnessing may not quite be as it seems. Perhaps if that’s the case, maybe these moves might make sense.
But taking them at face value, it sure is difficult to see how the combined actions are going to lead to a good economic outcome. Rather, it feels as if the policy makers are rapidly accelerating towards popping the stock, bond, and real estate bubbles.
Based on the fact you’re reading this article, there’s a good chance you’ve been hearing for years how the Fed’s policy inflated new bubbles, and that a day of reckoning is coming. Now it sure seems as if we’re taking a big step closer towards that ultimate outcome.
For those who are wondering why it has taken so long, the one thing the Fed always had some ability to do was to prolong the inevitable. But rising interest rates always loomed as one of the most probable pins to prick the bubble, and that’s what we’re seeing now.
Put as simply as possible, the more rates go up, the more likely we are to see the bubbles pop, and the sooner that’s likely to occur.
Certainly if you’ve invested in precious metals as a hedge against a “black swan” type event, it appears as if we are getting closer to that outcome.
It will be fascinating to watch how the data, events, and rhetoric unfold in the coming months. Because for now, every indication is that the time to be prepared for the market’s reaction to a decade of monetary easing and some baffling trade policy is rapidly approaching.