How a ‘Halloween storm’ could deliver a catastrophic blow to the stock market
Jim Rickards, bestselling author and tireless gold bug, has seen just about everything over his four decades navigating capital markets. What he hasn’t seen, however, is a better climate for a market “catastrophe” than the one we’re in now.
‘The worst panics are always preceded by a sense that nothing can go wrong. We are there again... It’s all good. What, me worry?
Rickards, who long ago also served as general counsel for collapsed hedge fund Long-Term Capital Management, says that mass complacency and euphoria has always been a recipe for historic meltdowns.
He points out that stocks are near all-time highs, the bond market bust hasn’t happened, mortgage rates are hovering around multidecade lows, the jobs market is solid, ISIS is all but dead and Brexit is on hold.
Complacency. Euphoria.
“Unfortunately, a political and market perfect storm is now on the way and may strike as early as Halloween 2019, marking a new ‘Halloween storm,’” Rickards wrote in a blog post this week. “Get ready. I cannot imagine a better setup for catastrophe. No one ever sees disaster coming. That’s the point.”
He laid out three elements for this storm: Impeachment, the 2020 election and Trump’s move from defense to offense with the “Spygate” investigation, which Rickards deems “the most dangerous and unpredictable” of all.
“These components are independent of each other but are at high risk of convergence in the coming months,” he wrote. “Any one of these storms would create enough uncertainty for investors to sell stocks, raise cash and move to the sidelines. The combination of all three will make them run for the hills.”
Rickards says, at that point, the only “safe harbors” will be gold GC00, +0.43% , cash DXY, +0.26% and Treasury notes TMUBMUSD10Y, -0.85% .
Wednesday’s session wasn’t exactly a storm, but the sellers had the upper hand as the Dow DJIA, -0.25% , S&P SPX, -0.26% and Nasdaq COMP, -0.45% all traded lower. Gold continued its winning ways with a gain of nearly 1%.
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