Control Panel: Last investor in America?

Investment Analysis Clubs Macro Economic Trends and Risks
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I think this is hyperbole. I think last week’s market rout could get much, much worse before it qualifies as a crash worthy to join the earlier ones. But hold on, it will get there if things go on this way.

https://www.wsj.com/finance/will-the-last-investor-to-leave-america-please-turn-out-the-lights-cdf727b4?mod=hp_lead_pos6

Will the Last Investor to Leave America Please Turn Out the Lights

The damage from Trump’s trade war is far greater than the losses in stocks, bonds and the dollar seen so far

By James Mackintosh, The Wall Street Journal, April 13, 2025

When market veterans gather, the talk often turns to memorable crashes: Where they were in 2020, 2011, 2008, 1998, or for the older among them, 1987. Last week should join that list. Where were you when investors fled America? [He’s a kid. I remember 1980-2 and 1973-4. – W]

But what really stood out [last week] was the combination of moves, the flight from American assets in general. Stocks, bonds and the dollar all sold off at once.

There was a lot more going on than just day-traders buying and selling on Truth Social posts. Investors who want to plan for the future need to take a view on three distinct drivers of what happened: trade, debt and de-Americanization…

The prospect of a self-fulfilling spiral of selling put investors and regulators on edge as a 2020-style panic in the bond market suddenly appeared possible. [That’s why I bought TIPS last week. Love them panics! – W]

Some big foreign investors now want a premium to buy U.S. assets because of the risk of the U.S. confiscating capital in some way… Stephen Miran, chairman of the Council of Economic Advisers, has in the past suggested a “Mar-a-Lago” accord that could charge for foreign reserves held in Treasurys. This would amount to a default.…

But the fall in the dollar is at least in part about a loss of faith in America. If that carries on, U.S. markets have a long way to fall as foreigners flee. [end quote]

The U.S. government has never defaulted on its debts since the Revolutionary War. Even the suggestion from an influential official could cause interest rates to rise. An upset of this kind in the Treasury market would make the recent stock market volatility look like child’s play.

The crazy volatility in the stock market usually causes flight-to-safety buying of Treasurys and USD. But last week both Treasurys and USD fell. The last bastion of safety was gold, which rose to record highs.

The Treasury yield curve rose along its entire duration as investors sold. Junk bonds did even worse as the spreads skyrocketed. Financial stress suddenly spiked indicating liquidity problems. The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems held steady but this is less sensitive than the Financial Stress Index.

A combination of high VIX and high Financial Stress indicates a financial crisis which is different from a stock market rout. I will keep a close eye on this.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 was -2.4 percent on April 9, up from -2.8 percent on April 3. The alternative model forecast, which adjusts for imports and exports of gold as described here, was -0.3 percent.

This picture is bad but it isn’t dire…yet.

The METAR for next week is for stormy weather since the underlying chaos and uncertainty is accumulating, not dissipating.

Wendy

The Fear & Greed Index is in Extreme Fear.

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Dear Wendy,

I sent out an email to three couples in my more immediate family telling them to get out of the markets.

It was to be the last email on the topic. I am out longer term. Why buy ever higher?

The three couples had told me their financial advisors told them to sit tight. I hate the fraud involved with that. Know nothings in fancy suits with big paychecks. Fraud all over it.

I went to see the oldest couple two days after I sent out the email. The TV was on and with it the markets and the Trump announcements.

She was sitting in his chair. He was sitting behind her. I decided don’t talk econ or finance. Leave them alone. She hushed me to hear the TV. He began to ask a question or two.

Then they told me, they were out of the market. This is the older of the couples. I did not ask are you listening to me? I did not ask when did you get out. I asked if they had stopped listening to their financial advisor’s advice. They said yes.

The couple were not looking at the TV during the day for months because of stress. Now they are relaxing and watching every bit of it.

I got an email back from one of the other parties asking for no more emails because of the huge stress involved. I did not respond.

Then that person called me to apologize more or less. They did not expect any of the answers I gave them. I discussed the older couple getting out of the markets and having a good time.

Simple really. We don’t need any heroes.

Adding regardless of my more fully extended family being very well off none of us can afford financial advisors that have much ability.

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Dear Wendy et al,

We had deflation month over month in March.

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So what? The Macro view takes the long perspective and that says inflation to me.

There was a month or two of deflation in 2008 but it didn’t last.
Wendy

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Dear Wendy,

We have only just begun.

As he says, “We just got to get this done…”

There is a problem in your response. This is not a textbook and this is not 2008.

The workers can see how the corporations are performing. No one should feel secure.

The bigger news tumbling consumption

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I’m still following the arithmetic.

Long-term buy & hold over the past 30 years has grown your money about 20-fold through 50%+ declines in 2000 and 2008.

Had you followed the macroeconomic musings of a market timer like John Hussman you would have left more than half of that on the table.

Do your research, follow the path of wealth and success, and “Minimize the Skim”.

intercst

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Dear Intercst,

BRK raised $332 B in cash their last Quarterly report.

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Buffett has held a significant cash position for years. That $332 B wasn’t raised in the last 90 days. Buffett added less than $10 billion to his total versus the previous quarter.

The money I have in cash through my Berkshire holdings exceeds what I carry on my own.

intercst

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When it comes to Hussman, it’s important to note that even a broken clock tells the correct time twice a day, but a broken watch doesn’t charge an arm and a leg for the privilege.

In general, the market can’t be timed - but in specific instances, when hit over the head with a 2x4, appropriate actions should be taken.

There is a huge difference between risk and uncertainty. Risk is quantitative and can be calculated, while uncertainty is qualitative and, human nature pushes us towards stupid over-reaction. Understanding this, about once a decade +/-, allows us the opportunity to take advantage of the poor judgement of others.

If this chaos continues much longer, I fear one of those opportunities may present itself. Hopefully there will be enough adults left standing to make sure we do not irretrievably self-destruct - and, like Samson, bring the rest of the world down for the ride.

Be careful out there.

Jeff

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Dear Jeff,

The problem is I am not Hussman and I am not a broken clock. I was bullish until the winter of 2023.

If anyone here says you left a lot on the table since, the table mat is being pulled off the table and the china is breaking off the floor.

This is a different animal. Think 1890 or 1929. We do not know yet how long this lasts.

Bingo!! The massive blunging has begun.

Dear Intercst,

Of course that was not what I said.

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Agreed, and this is one of those times. But rather than get out of the markets, I’m strongly considering an International Bogle 3-Fund. This gets one mostly out of domestic bonds and equities.

30% BNDX - International bonds eXcluding US
50% VGK - European equities
20% VXUS - international equities eXcluding US

Very nearly pulling the trigger…

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This is going to be a global great depression. I am hunting much lower lows.

BTW my thinking around the Chinese factory buildout that has begun, they might for the most part be wasting their resources.

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Jim brought up and interesting idea:
Post #56 by mungofitch on the Non-US Stocks board

"One possibility one might consider having a look at is is one of the funds that tracks the “MSCI World EX-US Equal Weight Index”. This tracks large equities in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

I can’t find a fund in the US (ETF or mutual) that tracks it, but there are several in Europe. One ETF is IE000OEF25S1 from Invesco. "

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