Since May 3rd, the S&P 500 has lost $1.2 trillion. At its low on Monday, the DJIA was down 700 points, or about 2.7%. The S&P was down similarly. But the NASDAQ lost more than 3.5% due to the greater concentration of companies in industries that are most affected by the current trade discord with China. Tech was down as much as 3.7%, while industrials weren’t far behind, with a 3.4% loss. In a flurry of weekend tweets, President Trump made it quite apparent that he was upset over the fact that China is backtracking on negotiated points previously agreed to.
At the opening bell, a swath of investors wasted no time unloading equity holdings, so as to pounce on precious metals and U.S. Treasuries, as the U.S. and China seemed determined to engage in a tit-for-tat tariff exchange. Following the most recent Fed meeting, Chairman Powell pointed out that the slower and weaker growth of the Chinese and European economies are “undermining U.S. growth.” Based on the extensive time the Fed spent discussing the “softer growth” of those economies, Powell seemed to indicate a willingness which “if necessary,” would allow the central bank to step in and lower interest rates, in order to provide a boost.
Due to its current trade advantage, China finds itself more vulnerable to economic attack and a growing number of analysts are talking about the possibility of China’s “nuclear option,” referring to their ability to flood the market with U.S. Treasury Bonds. China is the greatest single owner of U.S. bonds at $1.13 trillion, which represents a small part of total U.S. debt, but 17.7% of the various securities held by all foreign countries. Indeed it could create headlines, but any damage it could impose on the U. S. economy would be seen to a greater degree in the Chinese economy. Robert Tipp, chief investment strategist for PGIM Fixed Income said, “It’s a self-destructive nuclear option…Maybe it helps them as a bargaining chip, but it’s endangering the value of something they are deeply involved in.”
The fact of the matter is that China’s greatest economic control is the reduction speed of its role, as the leading foreign purchaser of U.S. debt. Since this time last year, China has managed to reduce their U.S. debt holdings by 4%. The U.S. didn’t feel it, because debt sales over the same period actually increased 2.6%, with Japan and Brazil picking up most of the slack. But this trade war is just getting started and the U.S. stock market’s bull run appears ready to throw in the towel. With or without a melt-up, the meltdown will most probably be quicker, deeper, and longer lasting than most before. Precious metals are on the short list of best known protections from the complete list of economic calamities now facing investors. Call the experts at American Bullion at (800) 653-GOLD (4653) to protect your portfolio, retirement, and legacy. Today’s support level prices are just another great reason to CALL NOW!
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.