Thursday, June 1, 2017

Crisis Watch Update

Earlier we mentioned that if we do have another major financial crisis it would most likely center around the Trump Administration. It is now becoming very clear as this Administration tries to disrupt the existing power structure ("drain the swamp") in Washington, the powerful entrenched interests there who do not like President Trump are going to fight very hard to stop him from what he wants to do.  The intensity of this conflict is very high as we see virtually daily.

So, perhaps all this intense conflict will actually lead to a real world crisis that could spill over into the markets and the financial system itself. That is certainly what we should watch for as things unfold. Markets have priced in a Trump agenda that is supposed to increase GDP and corporate earnings. Failure may start market corrections.

However, at this time, we do not have any such real crisis despite the daily uproar and controversy surrounding President Trump. So far, everything we are seeing is mostly political "noise" ramped up to a higher level than usual (which was already pretty high). The people who hate President Trump really hate him and are serious about taking him out as President. Trump has a personality somewhat like a street fighter and there is no love lost on his part for his enemies either. There is no reason to believe any of that is going to change during his term. 

Until someone is actually indicted for something, all we have for now is what I will call a "fake crisis". A lot of media buzz and political positioning, but not much substance so far.

Most people (who don't follow all this political bickering and are just trying to make a living) either don't really care about all the fuss or just assume that political agendas are involved, so they don't want to waste their time on it. Until something real happens that they think may impact them directly, most people won't pay much attention. Basically, the attitude is "wake me when someone is actually convicted of something" or the President is impeached, etc.

Here are some signs that might indicate a real crisis is starting to unfold. If you see these things it is time to pay closer attention and I suspect most people will if these things happen:

- the stock market drops more the 15% fairly quickly. So far the market does not really believe all this is going anywhere or it would be tanking much more than it has. A 10% correction at these levels would not be all that unusual, but a deeper drop might be a signal of more serious problems ahead.

- the US dollar takes a sharp dive downward. The dollar has been weaker lately, but has not taken a sharp and deep dive. If you see that happen, consider it a signal that something serious is really happening and confidence in US stability is wavering.

- gold and silver move sharply higher. Until you see gold at least $200 higher in a fairly sharp move up, the gold market is simply not convinced that any real crisis is on the horizon. It is true that the gold and silver markets are somewhat controlled to try and keep prices suppressed, but in a real crisis (not a fake crisis) that is not likely to be possible to continue. If you see gold make a new all time high above $2000, something really serious is going to be underway.

Added news note 6-1-17 (4pm): Today President Trump announces he is pulling the US out of the Paris Climate Accord. As time goes by and Trump makes more and more key decisions, it becomes a little easier to project what he may do. Now that he has killed both the TPP and the Paris accord, Trump has made it clear that he was serious about taking on the entrenched Washington (and global) power structure. Those were both huge pet projects for those interests. Pulling out is a clear signal that he intends to govern in line with his campaign promises to make decisions based on what he thinks is best for the US.

We can also easily predict how his opponents will respond. These actions will most likely ramp up efforts even higher to somehow get rid of him as they are direct slaps at their global agenda. We can expect that every possible effort will be made to either get him out of office or at least prevent him from enacting his own agenda. Expect continued relentless pressure against Trump in media and establishment circles.

All this suggests continued gridlock and ongoing intense fighting during Trump's term. Until one side or the other gains a clear upper hand, expect daily controversy and a fierce battle with neither side gaining much ground. Trump will do things he can do alone as President, but will likely find all kinds of obstacles to enacting his agenda where he needs help to get something done.

This kind of situation could possibly eventually lead to the kind of crisis we watch for here because there are powerful opposing forces in play. Both sides are determined to win and may not care what kind of collateral damage comes along with that. At some point, markets and the US dollar may end up as casualties if the ongoing war leaves the US dysfunctional. Time will tell, but we should have a pretty good idea by this year end how things are going. If the US stock market holds up, the US dollar holds up, and gold does not rally higher, it suggests Trump is doing well and likely to succeed and be re-elected. If the opposite is happening, it suggests Trump is in genuine trouble.


  1. The markets have become The Truman Show. Any warning signs are being squelched by the ESF and other plunge protection teams. The paper price of metals simply won't be allowed to signal a problem.