The US stock markets are deep in the red on Monday as China threatens to begin dumping US Treasury bonds. Economists are warning that the trade wars are threatening dollar dominance. Flooding the market with Treasuries would push down US bond prices and cause the yields to spike. A slight increase in bond rates last year triggered a massive equity sell-off and falling housing prices.
Gold is virtually the only asset showing modest gains as investors seek safety from economic uncertainty in gold.
We are witnessing an increase in both geopolitical and economic uncertainty:
- US adds more firepower to help USS Lincoln in the Mideast
- Ex-Country-wide CEO sees trouble ahead for home prices
- Stock markets whipsaw after China changes ‘the trade deal’ and Trump responds
President Trump adds more firepower to aid the USS Lincoln in the Mideast
Responding to threats from Iran the Pentagon said it was adding to naval forces in the Mideast. The Pentagon said the amphibious warship USS Arlington and elements of the 22nd Marine Expeditionary Unit will join the Abraham Lincoln Carrier Strike Group to counter any ideas that Iran has about threatening our forces in the Mideast. The USS Arlington is a San Antonio-class ship that transports Marines, amphibious vehicles and aircraft with the capability to support amphibious assault and special operations. The Pentagon said the Lincoln strike group was ordered to depart the Mediterranean Sea for the 5th Fleet
in response to indications of heightened Iranian readiness to conduct offensive operations against US forces and our interests. Some foreign affairs experts are warning that tensions are likely to ramp up in parts of the Mideast due to threats from Iran. Iran supplies most of Iraq’s electricity, losing electricity would be a disaster. How the public in the US will react if Iranian threats against our troops come true is anyone’s guess, but it can’t be good. We all will watch the headlines if the tinder box in the Mideast erupts again.
Former Country-wide CEO sees trouble ahead for some parts of the housing market
Angelo Mozilo who was the CEO of Countrywide during the collapse of the housing market is predicting another fall in home prices. He said for some homeowners in major high-end housing markets like New York and California it may be worse. High-end properties in coastal areas may fall as much as 40% from their peak value because many people can no longer afford them after losing deductions in the US tax overhaul that passed in late 2017, Mozilo said during an interview with Bloomberg Television. That compares with the 33% decline across major housing markets from the peak in 2006 to the bottom in 2009. Mr. Mozilo said
There’s too much inventory in the market, and there’s going to be more inventory because this tax bill was devastating to the middle-to-higher-income homeowner who can’t deduct anything except $10,000, He added
The volume of sales has dropped dramatically, and values are coming down dramatically, particularly on the upper end. Is the Federal Reserve willing to go back to excessively easy monetary policy if the big banks or economy show any trouble? If the Federal Reserve does change policy will the dollar fall out of favor and push investors into other assets that have held steady? Nobody really knows, but Wall Street is counting on the Fed to rescue them if the wheels come off the cart.
Stock markets whipsaw after China changes the trade deal and Trump responds with more tariffs
The stock market plunged early last week before recovering on Friday. The U.S dollar was steady and gold prices have been in the same general price area they have been for a while. The ‘trade war’ was elevated after President Trump increased tariffs on China to 25 % when China changed the trade deal. A long time ago when he was a private citizen the President said tariffs of 35 % on China was fair.
Over the weekend Larry Kudlow, who heads the National Economic Council told Fox News that he believed
both sides will suffer from the escalating trade dispute. Will stock market gyrations cause investors to flee favorite high-flying assets? Friday’s low for the S&P 500 was about the same level as early January of 2018. The stock market has been whipsawed for a variety of reasons over the past year or so. The S&P 500 closed Friday lower than it was on October 1st of last year, before what is historically the best time of the year for stocks ‘the holiday period’. Meanwhile, gold and platinum prices have held steady since October 1st. Gold is a little higher, and platinum has bounced from lows that have not been seen in over a decade.
With lots of the noise perking up it might be time to be safe and steady, just in case a storm comes.