Why This Drop Could Continue (And An Asset To Protect Yourself)

18.05.2017 • United States

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Henry Bonner – Strategy and Council Letter (United States) –

What is going on…? Our beautiful weather of yesterday has once again become rainy … gray … covered … We only have to close the windows and stay with us … Here in Lausanne, we have suspicions of summer … but nothing durable … nothing convincing .

Of course, as an American … almost everyone wants to know … “What do you think of Donald Trump …?” We assume that the question dictates more or less the answer we are supposed to give … but in general we disappoint Our listeners … we do not give them a few sharp witticisms at the President’s expense …

In any case, here in Switzerland, Trump fascinates …

Of course, we too are careful … and we try to guess how this story will end …

Donald Trump comes out so much from the mold … and rejects so much protocols and conventions of the political milieu … that almost the whole capital seems to want his death … or at least his resignation.

Perhaps Trump is aware of the dangers … or maybe not.

In any case, who knows how far the inhabitants of the political world will go to break his back or worse …?

From the lowest to the highest levels of the state, almost all seem to want to find an intrigue to bring down the leader …

In the capital of the country, Washington, DC, about 96% of voters voted for Hillary Clinton, Trump’s opponent in the election …

And all this vast army of bureaucrats and civil servants … lobbyists and activists … all earning their living thanks to the power of the State … is not ready to leave him free …

Of course, most of our interlocutors are not interested in these details …

More damage in equity markets …

Today (May 18), almost all the stock markets around the world are going down … Yesterday, the US markets slipped … the S & P 500 dropping by 1.8%, its strongest plunging in a month. Here in France, the CAC 40 fell by 2.7% in two days …

We have not seen such a decline since early April … when the market stopped to catch its breath …

As a reminder, the French equity market, represented by the CAC 40, rose by 22.7% in 6 months. We benefited from the bull market on Wall Street.

We said in recent days that the markets were “looking …” wanting more reassuring information before climbing higher …

Even the election of Macron and the publication of positive results by many companies had not been enough to push the actions up …

We thought the bull market might have lost its breath …

The latest news from Washington may have finally decided to drop.

At the White House, Donald Trump is still under attack by his detractors … and many analysts think they smell the blood …

Perhaps this last attack will eventually be fatal to him?

Or will it at least block its reforms to the tax code?

In any case, the stock market seems to have lost its optimism … for now.

Meanwhile, the Euler Hermes credit insurance box reveals a new way in which the French economy is falling back …

According to this box, French companies have still not caught up with the “investment delay” created by the 2008 crisis …

Almost 10 years after this last crisis, our economy is still slow …

According to their analysis, the French economy will catch up by 2032 …

Of course, the government of Holland did not help the situation … since they doubled in 2013 the maximum tax on capital gains … bringing it up to 61%.

So, as an investor, you have much less interest in putting your money in France …

Could the last “scandal” of the Trump administration really make the markets plunge?

We have known at least one period in modern history to which we could compare ourselves …

In the early 1970s, stock markets had rebounded for two and a half years … but in mid-1972, US President Richard Nixon was accused of using the CIA and the FBI to spy on his political opponents … Which was a major offense.

This scandal grew more and more in the next two years, and Nixon finally resigned in August 1974.

What have the markets done?

6 months after the start of the scandal, equity markets began a two-year dive, ending in December following its resignation (see the next Dow Jones macrotrends graph ).

During these two years, the Dow Jones lost 50% of its value.

If this last scandal involving Trump continues longer, could the market plunge by 50%?

Well, look at the following graph (also of macrotrends ):

You see, the “Nixon crisis” was only a small part of a much larger decline … from November 1965 to July 1982 … and during which the Dow Jones lost about 72% of its value.

What can we conclude?

Of course, in the short term, the President’s problems could bring down markets … but markets tend to reflect deeper problems …

During the 1970s, the value of European and American currencies plummeted … making consumers poorer …

Meanwhile, most important industries, such as automobiles and electronics, were moving to Asia.

What to do?

What asset has held out during this time …?

You may not be surprised …

… the gold!

From 1968 to 1980, the price of gold in dollars made a remarkable journey … climbing 1,379%!

As we often repeat … having gold will give you a security that you will not have with stocks, or even with a life insurance contract …

Your gold can not go bankrupt … or refuse to pay you … Your gold is there, in your hands, whatever happens …

But of course … you may have in mind a deeper question …

Are we close to a new long-term decline, as we experienced in the 1970s?

Or, is this reversal the opportunity to increase its position in the markets … hoping that the shares will repeat their performance in recent years ( 75% for the CAC 40 in 5 years).

Of course, we can not answer it … but we would let things go a little before we jump into the markets …

Despite the enthusiasm of recent months, the CAC 40 is only 0.2% above its April 2015 levels …

If you had bought at that time, you would not have experienced real benefits … after more than 2 years waiting!

Yes, the CAC 40 has just dropped slightly, but we are still “up” in terms of its recent valuations …

So … even if this market climbs even higher over time … we could easily see further declines in the markets for weeks, see months, coming …

Truly,

Henri Bonner

-Read more at www.lettre-strategie-conseil.com (French)-

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