Joe Biden's Bear, Elon Musk's Shanghai Folly, and Cash is King

Peter's Market Rap For the Week Ending August 18, 2023

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Hi.  Peter Navarro here with our weekly market rap on the Taking Back Trump’s America podcast and substack.   As I indicated last week, the American stock market, as best summarized by the S&P 500 index, had reached the upper end of its trading range several weeks ago and there is now more risk to the downside than rewards to the upside.

That bearish concern was on display again this week as the S&P 500 had another down week, losing over 2% while the NASDAQ lost over 1 percent.  Meanwhile, megacap tech stocks hit their longest slump this year -- three consecutive weeks of losses.

So what exactly is going on? 

Up to a few weeks ago, an expansive and profligate Biden fiscal policy – with the sad help of RINO Kevin McCarthy -- was overrunning contractionary monetary policy, feeding government-stimulated growth even as inflation appears to be moderating.  The script has, however, now flipped as the Fed’s interest rate bite is finally starting to draw some blood – this is Joe Biden’s bear now.

Take the housing market: The 30-year fixed-rate mortgage has soared to 7.09%, a far cry from the Trump days of 2%.  The double whammy here is that not only is it becoming a lot more expensive to buy a home; existing homeowners with low fixed rates are also now reluctant to sell and try to move up.  So that freezes supply putting further upward pressure on soaring home prices: sales are down nearly 20% compared to last year.

Weighing also on stock prices is this harsh reality: If you can earn 5% in a money market right now, why risk losing 20% or more in a market crash or correction?  So get the heck out of the stock market, which is exactly the mantra I’ve been meditating on in these market raps.

Now here’s something else to ponder that caught my eye.  It speaks to the fact that a lot of stock market bullishness has been predicated on a Federal Reserve ceasing its rate hikes.  But as some analysts are now highlighting, there is more than one way for the Fed to skin an inflation cat. To wit, even if the Fed halts the interest rate hikes, it may continue its so-called quantitative tightening to trim its bloated balance sheet – a major goal of Fed Chair Jerome Clueless Powell.

Yet such quantitative tightening effectively drains market liquidity and tightens financial conditions.  The Fed has already slashed its balance sheet by half a trillion dollars in a year. And there may be more to come. 

On top of all this, there is the world’s growing China problem.  Market wonks are now talking a lot about Communist China’s “3D” problem -- massive debt, deflation, and a demographics in which China is getting old much faster than it is getting rich, leaving a small fraction of workers to keep the government afloat with tax revenues.

As one surveys the growing wreckage in In the Red China’s economic landscape, we behold a slow motion collapse of both commercial and residential real estate and collateral pressure on the banking sector, the residual slow growth effects of an ill-advised total economic lockdown during the pandemic, a surprise rate cut by the Peoples Bank of China to halt the economic decline, a crashing currency following the rate cut that will import inflation into the Chinese economy, and a drain on foreign direct investment as the West has woken up to the wisdom of not putting their factory eggs in the China basket – hey Elon Musk pay attention and get Tesla the heck out of Shanghai before YOU get shanghaied.

Here, I’ve long thought that the bioweapon virus China genetically engineered in a Wuhan lab with the help of Tony Fauci’s gain-of-function research was unleashed on the world to stop Donald Trump from winning the 2020 election – which the virus certainly helped do.  So wouldn’t it be ironic if the knock on effects of the CCP/Fauci virus were to take out the dictator Xi Jinping AKA Winnie the Pooh?

And wouldn’t it be a shame if it were Joe Biden and American taxpayers who wound up bailing out Xi Jinping and the Communists from their folly?  This may well happen because billions of dollars of Joe Biden’s ill-advised fiscal packages are already beginning to wind up in China’s supply chains and factories, particularly in the electric vehicle orgy Joe is hosting.

At any rate, that’s it for now.  For me, cash remains king, meaning cash in money markets and short term instruments netting 5% or more.  In addition, as I noted last week for those searching for a walk on a more speculative side, a good speculation (not bet) might be SPXU, a 3X leveraged exchange trade fund that shorts the S&P 500 – so if the S&P 500 lost 2% like it did last week, SPXU would be up by about 6%.  Just remember: I’m not offering financial advice, just sharing how I myself think about the market.  

Okay, that’s it for now.  Keep your eye open for my next blockbuster poll which will form the basis of next week’s substack on whether the indictment quartet – Garland, Smith, Willis, and Bragg – might be indicted themselves in 2025 under a Republican presidency and Justice Department.  I’ll need your input. Stay tuned.

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