HOW TRUMP IS ABOUT TO TRIGGER HISTORY'S GREATEST STOCK MARKET CRASH

I. HOW IT HAPPENS

Here’s how it happens.

In March, inflation spiked, thanks to Trump’s ill-fated war on Iran. Gas prices jumped over 20%. You’re already feeling the pain at the pump. Already it’s expected to hit 3.3% this year.

Much worse is to come, because higher gas prices mean higher prices for everything, since our civilization is still dependent on fossil fuels for all its basics, from agriculture to aviation to construction.

Meanwhile, wages rose just 0.8% for the first three months of the year. That’s about 3.2% annually, if they don’t continue slowing, which they likely will, because the labor market’s frozen.

Put those two numbers together. 3.3% inflation, and that’s right now. 3.2% wage growth. See what’s happening? In real terms, people’s incomes are now shrinking.

II. REAL INCOMES ARE NOW SHRINKING

The US stock market is an exquisitely tuned machine, and I don’t mean that in a good way. All that matters to it is this quarter’s numbers.

The US economy is an exquisitely tuned machine, and I don’t mean that in a good way, either. It depends critically on consumption, rising, forever.

Those two Magic Numbers are linked. If consumption rises, the stock market keeps continuing its gravity defying rise.

But if it doesn’t? Then all hell tends to break loose. The US stock market is brutal, punishing, and merciless. Missing the numbers led, recently, to Nike shares dropping 15% in a single day, for example.

Now imagine what’s going to happen as consumption hits a wall.

Can people keep on spending…forever? At the astronomical rates Americans do? Cross the border into Canada, and consumption’s a fraction of what it is in America. Americans like to consume, and that’s OK. If they can afford it.

But when real incomes begin to shrink, they can’t.

III. THE X-SHAPED ECONOMY

Are you beginning to see where this is going? These two trend lines are crossing in fatal ways. Prices rising and incomes not keeping pace. It’s a topic of everyday discussion of course, called the “affordability crisis.”

But at some point, this becomes the greatest stock market crash in history. If and when American consumption finally hits a wall, and Americans pull back—because all that disposable income they used to have is being eaten by inflation, higher prices for gas, food, etcetera, then…bang. Watch out below.

To put that another way, the stock market right now is valuing the American economy as if it could take another hit like Covid, and just keep on trucking. Can it? That seems to me to be a pipe dream.

Imagine that gas prices continue to rise for the next three months. What happens then?

You could call all this the X-shaped economy, if you like. It’s as fatal as it sounds.

IV. HOW THE NEXT CRASH HAPPENS

What happens then looks like this. The next quarter’s earnings for American corporations flatline. They “miss expectations.” There goes the stock market.

Right now, interestingly, earnings for corporations are rising. That’s because despite it all, the financial pressure and strain they’re under, American households keep spending. But a new wave of inflation triggered by the greatest energy crisis in modern history will kill that like Hannibal Lecter.

Let’s try now connecting those dots in another way.

The greatest energy crisis in modern history is probably going to cause the greatest stock market crash in modern history, too.

At least if things continue this way. We’re discussing risk here. Not certainties. Right now, what you should be aware of is that the risk of all the above is severe.

V. MANIAS, FRENZIES, DELUSIONS, AND BRITTLE SYSTEMS

Nearly every wise financial mind agrees that the American stock market is seriously overvalued right now. From Warren Buffett onwards. They’re all watching what’s becoming a mania for dip buying and meme-stock frenzies and raising an eyebrow. They’ve been there before.

There’s a reason they’re warning you, and so am I.

We should never, ever see stock markets doing what they’re doing now, which is ignoring every single kind of risk there is. It’s almost comical by now how much and how many risks the markets have decided just don’t matter. Macroeconomic risk, energy risk, inflationary risk, political risk, climate risk—it’s a long list.

Risk builds up in systems. Until they snap. Stock markets are brittle systems. They are poised perpetually on the edge.

And in moments like these, all it takes is a match.

VI. THE BIG PICTURE

That’s all only the small picture, by the way. Let’s imagine that the Strait of Hormuz reopens tomorrow, and the oil begins to flow. Does that change the calculus above?

Only if you imagine that during the rest of Trump’s term, there isn’t going to be a stock market crash. Only if you imagine that this reality-defying dance can go on and on. Only if you imagine that Americans can keep spending at the furious rates they have been, as if the “affordability crisis” can just keep getting worse and worse, and money will magically appear for them at ever growing rates, permanently.

None of that seems to sound anything like remotely reasonable to me.

Or you could consider the simple fact that every new cycle produces a crash, and we have yet to have one in this particular wave of AI, cloud computing, the latest gewgaws “tech” is throwing at us.

Then there’s the invisible myth that America can have the foundations of prosperity ripped away—science, truth, knowledge, education, democracy—and continue to generate record-breaking wealth. How many wealthy fascist societies has the world seen? That’s a topic for another post, though: the fatal macroeconomics of American collapse.

So what should you do about it? This isn’t financial advice. What you should understand about all this is that the typical finance industry doesn’t ever discuss this stuff because it’s sort of like McDonald’s telling you what’s really in chicken McNuggets. You should think it over for yourself and make some choices, about your own wealth and life.

PS By the way, this doesn’t mean I’m saying run for the hills, or that I’m a “perma-bear,” subscribers will know precisely my position on global stocks and it’s hardly a bearish one. I’m not a bull and I’m not a bear, those are childish terms, I just believe in making money. Subscribers, you’ll have my latest portfolio soon.

Love,

Umair (and Snowy)