Bear market-Recession trigger
KINGSTON, NY 7 March 2018—Where are the markets and economy heading? Follow trend lines, not media lines.
The facts are clear, but rather than add them up and assess their implications, the mainstream media parrots a headline that's making the news, which may sound important, but lacks market-driver substance.
There are basic bottom-line dynamics that drive economies and equities. However, rather than identifying and analyzing these trends, a highly concentrated corporate media has become increasingly reliant on news blurbs that grab attention. And while sometimes significant, blurbs are not the basis for determining the direction of the economy and markets.
For example, take a look at Tuesday’s headlines.
- Wall Street advances on signs of North Korea talks – CNBC
- US stocks gain traction on signs of North Korea progress – Financial Times
- North Korea denuclearization news boosts Wall Street – Express, UK
North Korea moving toward peace talks has nothing to do with the state of Wall Street or the Main Street economy.
Of course, if Tuesday's headline read, “Trump fulfills promise to ‘totally destroy’ North Korea. US drops Mother of all Bombs on Pyongyang,” yes, that would affect the equity markets... and life on Earth.
After opening up 120 points on the de-nuclear talk, just a few hours later the CNBC headline read, “Dow falls 150 points on fears Gary Cohn may resign as economic adviser over tariffs.”
The markets finished the day up 9 points. However, following Cohn’s official resignation, later that day, Dow futures dropped over 300 points, but opened on Wednesday down only 150 points. In Asia, markets closed just slightly down. And in Europe, markets closed higher.
Again, the hype was bigger than the fact.
Yes, major trade policy decisions will affect the markets. But Cohn, who was complaining about his diminished role as economic advisor, was not and is not a significant factor in determining trade, tariffs or market directions.
It was the fear and reality of rising interest rates that triggered the market slump that began in February when the US Central Bank indicated that to contain inflation it would raise interest rates more aggressively than the Street anticipated.
And that same fear and reality, not Gary Cohn or North Korea, persists.
FACTS NOT HYPE
Facts prove that rising interest rates are taking a toll on consumers.
Rising rates are responsible for slumping new and pending home sales, just as rising interest rates have already dented auto sales, which fell 4.2 percent in February.
Americans owe $13.1 trillion in consumer debt, including $1 trillion in revolving credit. It will worsen as interest rates rise. Already, overdue credit card payments are at a seven year high. And, small banks are reporting a 7.2 percent increase in charge-offs as more consumers struggle to pay off credit card debt.
TREND FORECAST: We maintain our forecast that the Trump Rally has peaked. And, if the Fed aggressively raises interest rates (or Trump decides to “totally destroy” North Korea) it will send equities into a bear market territory, and trigger the onset of the next recession.