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discussion.fool.com - Control panel last investor in america

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.

wsj.com - Will the last investor to leave america please turn out the lights
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.

St. Louis Fed Financial Stress Index

Provides a