Bear markets challenge only the most patient investors—those who can withstand the myriad temptations to sell off assets at a loss. Each market uptick presents a fresh chance for investors to purchase shares at inflated prices, leading to eventual losses.
Currently, major U.S. stock indices are exhibiting a rollercoaster of performance. Sell-offs are sudden and dramatic, while rebounds often come with surprising vigor, making it difficult to navigate this trading landscape.
Proponents of ‘buying the dip’ eagerly dive into these rallies, aiming to take advantage of what appear to be bargains. Unfortunately, these seemingly irresistible deals can lead to painful setbacks.
Many investors, swayed by emotions of greed and fear, have repeatedly eroded their capital in the past week by buying impulsively before downturns, only to sell hastily before recoveries. What should we make of this volatility?
Perhaps the stock market’s steep decline following President Trump’s ‘Liberation Day’ tariffs was simply a momentary hiccup. It’s possible that his later 90-day pause on reciprocal tariffs (excluding China) might drive major stock indices beyond their previous all-time highs from January.
On Wednesday, Wall Street reacted positively to the tariff pause, resulting in substantial buying activity. The S&P 500 surged by 9.52%, while the NASDAQ soared by 12.16%. However, these gains proved to be fleeting, as the following day saw these indices retract by 3.46% and 4.31% respectively.
This market environment is fraught with risk. Stock valuations cannot remain perpetually elevated; mean reversion is inevitable.
Despite a year-to-date decline of 10.23%, the S&P 500 still boasts a cyclically adjusted price-to-earnings ratio of 32.55, far above the long-term average of 17.23 since 1871. This suggests that there is still significant room for a decline.
It’s essential to recognize that the stock market and the economy are distinct entities. Through his tariffs, Trump aims to reinvigorate American manufacturing. However, this goal cannot be accomplished overnight—it is a long-term endeavor that may require a decade or even longer. At what cost, though?
At present, Trump is engaging in risky tariff maneuvers that oscillate between periods of enforcement and suspension. This unpredictability threatens established trade relationships and supply chains. The more he gambles, the higher the chances of igniting a situation that spirals out of control, potentially resulting in a significant trade war, soaring unemployment, and a global recession.
Is it possible that Trump’s ultimate aim is to dismantle the global economic order established since the 1970s so he can reshape it according to his vision? If necessary, would he be willing to let it all burn?
This approach, while not unprecedented, has had mixed outcomes. Let’s examine an illustrative example.
Work of a Madman
Simon Rodia, an Italian immigrant, was a man of unwavering determination. Between 1921 and 1955, he tirelessly constructed towering sculptures in his backyard in Watts, Los Angeles, using chicken wire, steel pipes, and rods. His motivations remain a mystery—perhaps he found joy in this eccentric labor.
After three decades of work, Rodia abruptly ceased all activity, surprising everyone by transferring ownership of his property to a neighbor and then vanishing from Watts. His creations, now known as the Watts Towers, have since become a National Historic Landmark.
Watts has a reputation for peculiar occurrences. For instance, during our nearly two-decade experience of riding the LA Metro Blue Line (now called the A Line) from Long Beach to Los Angeles, we encountered strange sights.
On a December evening in 2005, we found ourselves on a train heading south just as the funeral service for community icon and children’s book author, Tookie Williams, was concluding—a week after his execution. Governor Schwarzenegger had rejected final pleas for clemency.
As the four-hour service wrapped up, attended by prominent figures like Reverend Jesse Jackson, Snoop Dogg, and Minister Louis Farrakhan, thousands of mourners boarded our train, clouding the atmosphere—heavy with sorrow and the residue of alcohol.
Rodia’s legacy lives on; he is even featured among the faces on the cover of The Beatles’ Sgt. Pepper’s Lonely Hearts Club Band, located just to the left of Bob Dylan.
Simmering Hot
The Watts Towers symbolize resilience and unlikely survival in a landscape marked by decay. Their value becomes apparent only when considered within their broader historical and cultural context.
In August 1965, just a month after Rodia’s death, Watts erupted into flames. The Watts riots began on August 11, igniting five days of chaos in South Central Los Angeles and resulting in over 30 fatalities.
This upheaval may have stemmed from a simple moment of provocation, but the underlying tensions were already stirring. The unrest ignited over an incident involving a police arrest that quickly escalated into widespread mob violence.
Tempers flared after a white officer arrested a black driver, leading to a chain of events that resulted in chaos in which small businesses were pillaged and numerous buildings were set ablaze.
Trump Plays with Fire
The riots erupted the following night, even amid calls for peaceful resolution from the arrested man’s mother, whose pleas were drowned out by violence. Rioters caused extensive damage, demolishing thousands of businesses, while authorities struggled to maintain order.
The police and National Guard implemented a straightforward strategy: let it burn.
Inside this chaotic environment, rioters chanted, “Burn, Baby, Burn!” while wreaking havoc.
This tactic of allowing destruction to unfold represents a last resort—a strategy taken when all other attempts to restore order fail. Similarly, burning down the global economy should never be the first option.
Trump, however, continues to play with fire. Instead of pursuing sound fiscal strategies to reduce the trade deficit, he lights a match and allows chaos to unfold, only to later attempt to extinguish it. Yet, as the flames grow hotter, they may escape his control.
While many elements of the “looter’s playground” were ultimately lost during the Watts riots, the Watts Towers stood intact. Even in the throes of destruction, their value was recognized, warranting preservation.
In the wake of Trump’s tariff wars, what portions of the economy and financial markets will remain standing?
Assets such as gold, silver, and long-term food storage will endure. In contrast, stocks, bonds, and other debt-driven financial instruments may be left as mere ashes.
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Sincerely,
MN Gordon
for Economic Prism
