Matein Khalid
I have warned my friends that US recession risk was rising alarmingly in the past month as I saw the price of oil and money (2-year Treasury note yields) tank in unison while metrics of consumer/business confidence nosedived. Now Wall Street has accepted my thesis that the tariff trauma will lead to a deflation Big Chill and not an inflation spike in the US economy. Nasdaq is down 760 points as I write, a mini crash. The S&P 500 index violated 5730, its 200-day moving average while I was with my cronies at the StanChart Mandario O dinner on Thursday night. The relief rally on Friday was a fake bull trap. Note that the plunge in the US dollar liquidity cycle has triggered a bloodbath in private equity/private credit as the free fall in the share prices of KKR, Apollo, Carlyle and Blackstone attests, let alone the plunge in money center bank and airline shares. When the $28 trillion US economy, whose currency is the reserve currency of the planet, sneezes, the rest of the world catches influenza.
Pegged petrodollar currency economies in the Gulf are linked via monetary policy and interest rates to the US, since their currencies cannot depreciate as King Dollar wobbles on Planet Forex, the logic of Econ 101 argues that the burden of macroeconomics adjustment will fall on their stock exchange and property values. I wonder how many of my friends have noted that Emaar has fallen 8.5% from its recent 14.45 AED high, sending a warning sign to the perma-bulls, whose selective amnesia and macroeconomic illiteracy convinces them that speculative property market manias can continue forever, sadly in the real world this does not and cannot happen until a new generation of punter’s net worth is gutted by the cruel whims of Mr. Market.
The chaotic Trump 2.0 has proved a dark moment for the US economy and financial markets, making a mockery of those who assumed that Ivy League credentials or billionaire dollar bank accounts endowed the high priests of MAGA with some mystical economic wisdom, let alone bais competence. The first 6-weeks of Trump 2.0 have proved a disaster for US asset values, US economic growth and the ugly American stereotype is now dominant across the world. I never thought I would see the day when Canadians would boycott American beer (no big sacrifice there!) or Europeans exclude Uncle Sam’s diplomats from a Paris conclave to plan the defense of Ukraine.
Tesla has lost $800 billion from its post election peak in December, a fact that will not exactly endear Elon Musk to his shareholders as they bleed to death on Nasdaq. I can see many stocks and sectors as safe haven amid this tempest as they are neither exposed to tariffs or cyclical growth slowdowns. For instance, Amgen (AMGN) has risen from 305 to 330 amid this mayhem and the Seven Sisters, led by Exxon and Chevron has remained the rock of Gibraltar in Big Oil.
A $4 trillion wealth meltdown on Wall Street will have an impact on asset values and risk metrics all over the world. Consensus estimates of 10-12% earnings growth now makes no sense and the stock market is still overvalued at 20X earnings. The 5% plunge in Apple (AAPL) stock today proves once again that when the margin clerks make the macro algos dance to their tune and investors often sell what they can, not what they must. I thank providence for the existence of the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE), who enable me to hedge, insure, manage, transfer and warehouse risk. The shares of CME and CBOE are also correlated to a higher volatility macro mileu, making them ideal tactical investments in Trumpworld.
It is significant that the Mag-7 tracker fell 20% from its September 18th close back in the Biden Stone Age. When the generals go down, it is time for the majors and colonels to flee the battlefield or raise white flags in surrender, hopefully not made out of white underpants that Saddam forbade for his combat troops in Iraq’s wars with Iran, Kuwait and Uncle Sam. Are we seeing capitulation in the market in certain sectors? Yes. In others, Get Shorty is my optimal strategy du jour!
Also published on Medium.
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