Time for a Little Skepticism

I’ve supported Trump since his first term, but my hopes for his success peaked a month ago when a panic-induced plunge in the S&P 500 reversed almost precisely from a 4820 target I’d sent out to subscribers. I saw this as the surprisingly quick end to a bear market that had only just begun in February. If my hunch turned out to be correct, this meant America would experience no recession, and the tariff wars would blow over without causing any lasting harm to the global economy.

So far, the prediction — still an outlier, for sure —  looks good, at least on paper. The chart shows how the S&Ps have rallied a Krakatoa-like 1089 points since trampolining in April from within a hair of 4820. The powerful move has somewhat muffled the clamor of TDS sufferers, even if it seems clear by now that nothing will ever bring them around. Meanwhile, dare we hope the radical changes that have set Trump’s agenda will extricate America from a debt trap with no apparent exit?  A debt deflation has long seemed inevitable because public and private debts have grown far too large to repay.

DOGE Gains Up in Smoke

If Trump initially offered a possible way out and seemed enthusiastic about pulling off the impossible, he may have lost too much momentum already to succeed. The DOGE cuts that fired up so many supporters have been voted down by Congress, including by some Republicans, and it took quiet help from the Fed last week to bolster the appearance of strong demand for long-term Treasury paper. Now, if the Supreme Court fails to put the kibosh on birthright citizenship and nationwide injunctions by woke judges, Trump may need a hat-trick of successes in Ukraine, the Middle East and China to rally the troops.

Still more daunting is the challenge of postponing a long-overdue recession. A radical re-shaping of the U.S. and global economies such as Trump is attempting could conceivably accomplish this, but it no longer looks like a good bet. Mainly, it’s a matter of timing. Trump evidently thinks tax cuts, the reopening of factories, and some MAGA ray-rah will keep America’s economy humming. This now looks doubtful, if for no other reason than that 7% mortgages are about to push residential real estate into the same deep hole that has buried commercial real estate. There is also fatal hubris in the stock market’s climb.  Although it has provided spectacular returns for the most affluent Americans, the broad middle class has been beggared by inflation. Trump would have us believe he offers an easy and painless way out, but a bear market in stocks will end that delusion.

I said I would continue to publish my ‘insanely bullish forecast’ until such time as the S&Ps fell decisively below 4820. I am retiring the commentary from the front page, however, because I believe the so-far 1089-point rally is near an end. Powerful as it looks on a chart, I doubt that it will achieve new record highs.  Stocks look poised to fall hard, a development bound to take many investors by surprise.

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