So I guess when the president tells you to buy stocks, YOU DO IT!
Oh man, this is truly one of the weirdest trading environments I’ve seen in my 27 years. Because we’ve never seen anyone willing to play chicken with the global economy before…
The simple truth is always that if you push asset prices low enough, something will break, that’s the whole point of Buffett’s famous quip that you don’t know who’s swimming naked until the tide goes out.
You never know at what price level will investors stop worrying about the return on their money and instead simply want a return of their money. There are established rules about trading on margin – if prices fall a certain percent (usually 25% – 30%), the broker will demand cash deposits into your account and if you don’t pony up, the broker will start selling your stuff. That kind of selling snowballs fast…
The same dynamic can hit institutional investors, in the form of redemptions. People want out of mutual funds or ETFs, the funds get sold, cash gets raised and investors get paid. Problems arise when the institutions themselves are leveraged, like banks were with mortgage securities back in 2008-09. There was no way to raise cash because there were no buyers (I’m looking at you, private equity!), so prices fell, banks failed and bailout money went right out the back door to pay off what amounted to the biggest margin call the world had ever seen.
One of the great ironies of that era came from the Federal Reserve Chairman at the time, Alan Greenspan. Greenspan loved to pontificate about the modern economic miracle, where derivative risk and leverage were spread across the globe. He wasn’t wrong, exactly. More like he forgot a fundamental truth: there is always a price level where things start to break.
Which is why most American presidents don’t play chicken with the global economy. Because it’s hard to be sure exactly where the point of no return is, and you can’t be sure you can stop the snowball once it gets going…
So I was going to write that I’m not sure I’ve ever seen a market so excited to see what is still a really restrictive policy – 30% tariffs on China. Except for the context above — President Trump is pulling back before things actually break.
I’ll take the win, though I’m still not 100% sure exactly what we’ve won, except for a dip to buy.
Tune Out the Noise
I gotta say: Hammer and I have been pretty even-keeled through this whole thing – a stark contrast to the financial media, which has been on doom-loop overdrive for months. It’s hard to tune out the bombardment of recession calls – but the economic data thus far just hasn’t cooperated. The labor market has stayed pretty strong and today’s inflation number from April came in better than expected.
Maybe the economic data will eventually get worse, but it feels a lot like 2022, when the consensus was that inflation and Fed rate hikes were sure to cause a recession.
After Wall Street strategist-types scrambled to cut their year-end forecasts for the S&P 500, they are now doing the same thing, only in reverse. After cutting its target from 6,500 down to 5,700, Goldman Sachs raised its target for the S&P 500 back up to 6,100 today. Yardeni Reasearch went from 7,000 to 6,000 and now is back to 6,500…
This kind of amatuerish wishy-washy crap should be against the Rules of Prognostication. You don't get to change horses midstream — you pick your number and you stick with it. I can’t help but wonder how quick they’ll pull another “about face” the next time things get wonky. For the record, my 6,325 target for the S&P 500 (published back in December) was much less bullish than most. I never saw the need to lower it, and I won’t be raising it either. Still it is funny how Wall Street is now in the same range I was 5 months ago.
Outsider Club had you in gold and silver stocks to stocks to start the year. My top pick to double your money (Oklo) in 2025 jumped +100% in the first six weeks of the year. In our Chart Wars series on YouTube, we’ve recommended Tesla at $280 (now $330), Snowflake at $153 (now $185) and RedCat at $5 (now $6.50).
And we'll be ahead of the curve again as we get you in stocks for the Robo-taxi revolution…
You’re in good hands.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
