No, It’s Not 2008

Day Three

If you’re looking for a near-term “reason” the stock-market meltdown is carrying into a third trading day, this should probably suffice.

Asked by reporters yesterday if he was deliberately crashing the market, the president replied, “No, that’s not so.”

The question wouldn’t have been necessary were it not for the fact that on his Truth Social platform, he reposted a link to a TikTok video asserting that he is crashing the market on purpose.

The video describes a “wild chess move” aimed at “forcing” the Federal Reserve to lower interest rates so that the cost of financing Uncle Sam’s $36 trillion national debt will come down.

At the risk of repeating ourselves, companies can adjust to bad news — but they can’t handle uncertainty.

The president giving oxygen to the notion that he’s deliberately crashing the market? Much uncertainty.

Elon Musk helped muddy the waters over the weekend, too.

Musk’s remarks prompted further social-media speculation — some of it from hard-core MAGA types — that the actual endgame for the tariff regime is free trade with everyone.

So… the tariff to end all tariffs?

Shades of President Woodrow Wilson over a century ago, promising American entry into World War I would be “the war to end all wars.” It didn’t work out that way…

“I suspect that Trump wants something in the middle,” says Jim Rickards’ senior analyst Dan Amoss. “As in, give our industrial base a fighting chance (because it was on the path of drowning completely), while still being open to being nice to trading partners who lower their trade barriers and tariffs.”

Key point for this coming week: “The sooner Trump makes a ‘good’ example of a country that commits to being more open to our exports, the sooner we’ll get a bounce in the market.”

Is It Really 2008 Again?

The media is falling all over itself to compare the present moment with the 2008 financial crisis. A better analogue is a much less scary episode a decade later.

“It definitely feels similar to 2008,” hedge fund manager Ran Zhou tells The New York Times — which says it spoke throughout the weekend with “bankers, executives and traders” who said “they felt flashbacks to the 2007–08 global financial crisis, one that took down a number of Wall Street’s giants.”

But a more relevant comparison comes from the first Trump administration, says Paradigm trading pro Enrique Abeyta.

In January 2018, Trump ventured to the World Economic Forum’s annual shindig in Davos, Switzerland — and signaled he was about to launch a trade war.

There’s a lot going on in this chart from that period — but note the top circle showing how the S&P 500 sold off 12% in only a few days.

Note also the lower circle. “The bottom chart is the relative strength index (or RSI), which is a measure of investor enthusiasm,” says Enrique.

“A high number (above 70, the red line on the chart) shows investor exuberance. A low number (below 30, the green line) shows investor pessimism. Low numbers can be very good buy signals.

“There are a lot of similarities between this sell-off and what we are seeing today,” Enrique continues.

“Back in 2018, the stock market went from a very overbought position — distance from the 50-day moving average and high RSI — to immediately being oversold.

“The S&P 500 traded down to the 200-day moving average and bounced +9% and back above the 50-day and 100-day moving averages.

“From there, it would retest the 200-day moving average and then trade in a very choppy manner for three months before settling down.

“After that, the stock market went to new highs.”

So what about now? The setup is similar, though not identical.

“We had a very overbought stock market in the months leading up to the tariff talk,” Enrique says. “This then resulted in a rapid sell-off where the S&P 500 fell 10% and traded below the 200-day moving average. Then there was a multiday rally of 5% and back to that 200-day moving average.

“On the charts, you can clearly see some similarities and a few key differences. This time, the situation has taken longer to develop. The sell-off has also done more damage with the S&P 500 trading below the 200-day moving average and staying below it — especially after the big recent announcement.”

Which makes sense when you acknowledge the tariff regime this time is much more ambitious.

“The stock market is accurately responding to the magnitude of the difference,” Enrique tells us. The point is that in both instances, the tariff regime was more ambitious than Wall Street was counting on.

Back in 2018, “We saw that it took three months for the market to digest the news,” he concludes. “The same could happen here, if not longer.

“While this will be painful for long-term investors, it will provide many short-term opportunities for traders.”

Tariffs Are Just the Excuse

While the mainstream is keen to pin the blame on tariffs… and the sell-off did get underway after the “Liberation Day” announcement Wednesday… that’s not the whole story.

From a chart standpoint, Enrique says the market coming into early 2025 was extremely “overbought.”

And at the same time, stock valuations were extremely stretched by historical standards.

There’s a ratio called the “Buffett indicator,” popularized as you might imagine by Warren Buffett. It’s the market cap of every publicly traded company divided by America’s annual economic output. Major peaks in this indicator appeared just before the dot-com bust in early 2000 and the vicious-if-orderly bear market of 2022.

After 2022, the indicator recovered to an all-time high in February — which coincided with the market’s all-time high. There’s a reason ol’ Warren was sitting on a record amount of cash late last year and early this.

Other measures of valuation like the “Shiller P/E” were also overstretched.

The point is that the market was the proverbial bubble waiting for a pin to show up — a major bank failure, a war, a natural disaster wiping out critical infrastructure.

The pin just happened to be tariffs.

And if it’s the prospect of a recession that suddenly has Wall Street’s “professionals” worried… well, Paradigm’s macro maven Jim Rickards has been warning since Election Day that Trump would likely inherit a recession resulting from the excesses of the Biden years.

“Roller-coaster ride” doesn’t even begin to describe the market action today.

The S&P 500 plunged another 3.5% on the open this morning… only to shoot back into positive territory within the first hour of trading. Evidently rumors began to circulate that the White House was looking at a 90-day pause in the tariff regime. Then the White House said those rumors were “fake news” and the market dropped back into the red.

At last check the S&P 500 is down about a half percent on the day at 5,051 — right around where it was in early May last year. It will surely be different by the time you read this. Even now, news is coming in that the European Union is ready to negotiate. Volatility is the name of the game for the moment.

Speaking of volatility, the market’s “fear gauge” known as the VIX is up again today, over 51 — approaching the spike high seen during a market scare last August.

And then there’s the volatility in asset classes beyond stocks.

Oil sank under $60 when electronic trading opened for a new week on Sunday night. The last time crude traded under $60 was around this time four years ago, a time when the oil price was recovering from COVID lows and a majority of Americans were still subject to indoor mask mandates.

A barrel of West Texas Intermediate has since rallied above $61. There’s no major news of escalating geopolitical tension — although Israeli Prime Minister Benjamin Netanyahu is visiting the White House today. The last time he paid a call on Trump, Trump announced his plans to “take over” the Gaza Strip — so stand by for some war drums to roil the markets anew.

Gold sank below $3,000 overnight, staged a recovery over $3,000, and now is a few cents below that round number. Silver, on the other hand, has looked strong, recovering the $30 level. Likewise the mining stocks are resilient, the HUI index slightly in the green.

Bitcoin’s resilience of last week did not last through the weekend. It tanked to nearly $75,000 at one point — although at last check it’s back above $79k.

Comic Relief

And now a grim chuckle in light of the stock market action — courtesy of the meme-o-sphere and the Star Wars franchise. (Start at the bottom…)

Mailbag: The Health Care Cartel

“My girlfriend works for UnitedHealthcare,” a reader writes after our issue-length exploration of the health care cartel last week.

“She received a 20 cent raise this year. It is a very high-stress job and she gets paid so poorly that I have to provide her funds so she can get a new car after about 10-plus years of driving the same vehicle. I have zero empathy for the clown that got whacked. 

“There is a real disconnect between those subturds and the lifestyle that they live (he was getting no less than $20 million total a year in pay/benefits etc.) and how the general public is getting the shaft. The new CEO is even worse and is in the process of offshoring all of those jobs. When he came in he told everyone you can choose an early retirement or wait and see if you get fired. That is just the truth.”

“I could write pages about this subject,” writes a member of our Omega Wealth Circle, “but I will limit myself to saying that the FDA and other regulatory agencies that are supposed to watch out for us are a perfect example of regulatory capture, where the industries they are supposed to regulate own and operate the agencies.

“I wish RFK Jr. the best in reforming this mess, and I do think he largely understands the problem, but it will not be easy, since the medical care industry basically owns Congress.”

“Good one, Dave!” says our final correspondent.

“We're aware that medical expenses are ridiculous. Great examples. Now give us some reasons why. Ways in which the medical cartel operates. (pun intended)

“Like 11 million illegal immigrants getting free medical.

“Or trial lawyers looking for ‘the Big Rain.’

“Remember ‘tort reform’? I think the first Bush mentioned it and was nearly buried. There is a reason the American trial lawyers association is a main contributor to the Democratic Party.

“Also, the American Medical Association has a big say in which and how many new doctors are allowed.

“Keep up the good work!”

Dave responds: Those are all factors, yes, but the real problem is all the complex cost-shifting schemes I alluded to.

They go by various names — including “uncompensated care” and “PPO repricing.” The constraints of space don’t allow us to get into that today. Suffice to say the story is more complex than the usual right-wing whipping boys you cite.

Which reminds me: Never forget that the seeds for Obamacare — including the horrid “individual mandate” upheld by the Supreme Court — were first planted by the conservative Heritage Foundation.

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets