‘There are two bubbles: We have a stock market bubble, and we have a bond market bubble.”
Last week was a busy one, packed with Trump’s first State of the Union address rife with his trademark embellishment on Tuesday, the release of a politically charged Congressional memo with significant implications (if we were to believe pop-con media) on Thursday, the latest Employment Situation Summary report from the Bureau of Labor Statistics on Friday, and the end of Fed Chair Janet Yellen’s tenure over the Federal Reserve also on Friday. The biggest news story of last week, however, ended up not being about government process, political angst, or even political appointees. It was money.
Just days after Donald Trump bragged that the success of the stock market was somehow indicative of how he was doing in his State of the Union, the DOW, S&P 500, and Nasdaq all clocked 2% losses on Friday, as stock markets jitters over the real threat of inflation turned bulls into bears. A lot of things pile in on these fears, with a change in leadership at the Federal Reserve and her last minute punishment of Wells Fargo, with significant implications for the banking and loan industry as a whole.
There is no arguing that the market drop on Friday was anything other than a rout, and it remains to be seen if the weekend will be long enough to cool the white hot fears of inflation that drove the market stampede in the first place. If it’s not, we’re looking at the beginning of what could be more than just a broad correction, but it’s still too early to call. What we can be certain of, however, is that investors know that the market is extremely overpriced, and it didn’t take much to send them running to more modest positions.
“Money often costs too much.”
-Ralph Waldo Emerson
It’s clear that the market is moving from a period of unchecked expansion that was fed by the free money policy of the Fed that only recently ended, to actual resource scarcity, probably caused, in no small part by the tariff on imported goods, including solar panels and washing machines. Money is moving out of the intangible market of stocks, because everyone knows they are overpriced. The interesting thing is that commodity prices and bond prices also fell, which shows a significant drop in confidence that runs the table.
Buried in the Job Numbers released on Friday was that the number of jobs created in November and December “combined were 24,000 less than previously reported“, and the labor force participation rate remained unchanged at “62.7 percent for the fourth consecutive month“, which is where it was when Trump took office over 12 months ago. As the unchecked bull market that has run on nothing but momentum for months now finally finds the end of its rope, the real question is how far back will the pullback come.
We find out today.
Liberty is For The Win!