Thursday, February 11, 2016

The Trump-Sanders Market

Stocks broke to new closing lows today with the S&P 500 down 1.2%. CNBC mentioned five reasons for the decline:
1.Central banks out of bullets.
2. Continued drop in oil prices.
3.China worries.
4. Global recession fears.
5. An emerging European banking crisis.

Amidst the decline in  share prices treasury bonds rallied strongly, but gold soared with a $56 advance and the dollar actually declined against the Euro. If the five reasons mentioned were the only causes then we would not have expected gold to rally and the dollar to decline. There is something else going on.

Simply put CNBC left out the big elephant in the room, the forthcoming presidential election whose primary contenders are Donald Trump and Bernie Sanders. If market participants didn't believe this was so, this week's New Hampshire Primary certainly disabused them of that notion. Both of these candidates have one thing in common; they want to blow-up the global trading system. They may or may not realize it, but they are playing with the fire that the stuff global depressions are made of. Thus the market is beginning to price in the very real political risk facing the U.S. stock market.

For my prior comment on Trump and the stock market see:

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