Why Investors Are Still In Denial

The market is always right, so they say – but sometimes, it takes a while to come to its conclusion. In extreme times – and these are an example – it can take people time to adjust to the new circumstances. Since the market is made up of people, it also takes time to fully price in what has happened and what is happening.

A model for this is Elisabeth Kübler-Ross’s Cycle of Grief: Denial, Anger, Bargaining, Depression, and Acceptance. A quick dip into the mire of X/Twitter shows Denial and Anger in full swing – and increasingly the Bargaining of “if, if, if.” My take is that many people not only haven’t received the memo about what’s really going on but also haven’t calibrated the consequences of current events, which both are obvious and explicit.

Wrecking the capital base of America will make nothing great again, but there still appears to be a level of denial about the consequences that has yet to be reflected in stock prices and indices.

The call is simple: Is the administration serious about its revolutionary policies, and will it follow through? I say yes. So, let’s calibrate. Here is a sobering chart.

If the U.S. market is crippled and adjusts to a level of robustness – or, more accurately, a lack thereof – this is the picture:

That’s right – the U.K. market is now back to the pre-Covid crash levels now and serves as a good approximation of a shattered market.

The U.S. stock market miracle totalled north of $50 trillion before this situation. 25% of that has gone poof! Even at this stage, that’s an economic disaster.

More to come? It’s hard to imagine the impact of more.

There’s a glimmer of hope – but only a faintone. DOGE might come off the rails as Musk appears headed for the exit. However, that Kraken is unbound and won’t need him to carry on kicking the legs out from under a trillion dollars of stimulating spending. I’m ignoring the rights and wrongs of that spending – I’m simply calculating the impact of $1 trillion less spending. On its own, that might be a great thing. But as one of a series of seismic actions, it’s too much for the economic organism to bear.

Meanwhile, the second horseman is off in Panama whipping up yet more instability. So basically, there’s one question: What turns this around?

To me the answer is: nothing. So now it’s just a matter of guessing the bottom and the duration of the bear market. My guess is two years and 50%+, but it is just that – a guess.

This outcome is not fate – but the doubling-down tariff strategy we have just seen, with 100%+ tariffs on China, is not a recipe for a recovery. Meanwhile, the trajectory the U.S. and world economy are on will create an epic global dislocation, with currently massive and unfathomable costs.

The funding for this U.S. onshoring and industrial restructuring strategy won’t come from a cratered stock and bond market – the funds simply won’t be there to pay for it. So, what then?

The market will tell you whether there’s a good or bad road ahead, while gold will tell you whether the news to come is even worse than multiple looming economic shocks.

These next few weeks will be crucial to the next ten years.