Gold and macro environment, page-1176

"Sell in May and go away" is a common statement regarding the general share market ie sell shares in May and wait to buy back in later in the year - but it does not always apply.

However, this year we may find the statement very prophetic and sell in May may end up being sell in late April/May as I think we may see a significant downturn in the US share market in the next few months as I explain below with the assistance of an article in the AFR just now. However I may be totally wrong. I do not understand why the general share market has been going up - and the AFR article agrees.

The key question is what a fall in the share market will do the the POG. If it is like early to mid- April just gone we may see a big increase in the POG especially if the US dollar falls and longer term bond rates spike up like they did recently - hence my reservation that POG will pause for a few months in my previous post. However, if it follows historical falls in share markets (eg 2020, 2008, 2001) then POG may fall a fair bit before it rises again after 3-6 months to much higher levels. I favour the former scenario.

There has been lots of US commentators stating the following:

- consumer sentiment, business sentiment has dropped like a stone in the US and there are many other indicators the consumer in the US is really struggling
- supply chain disruption looks like its now on a par with COVID or even worse or will become worse
- significant shortages of goods from late May getting worse in June and July due to China imports almost completing stopping including warnings from major retailers (it takes 4 weeks to sail from China to US ports and another 2 weeks to be transported to the retailer) - this will impact clothes, shoes, furniture, white goods, cars, etc. The US imports $2tr a year from China. There are major flow on impacts:
- large number of port workers and truck drivers plus importing/export workers will be unemployed starting from May - many many hundreds of thousands
- many small/medium businesses will have little or nothing to sell and will go out of business or reduce their business - lots more unemployment - flow on impact to commercial property as retailers stop trading or close some shops - the US commercial property sector is already struggling
- many of the goods from China are used to build other goods made in USA - this will cause major flow on of shortages of other goods
- US also imports a lot of capital goods from China which will cause shortages
- Inflation of goods will follow:
- shortages of goods will drive up prices as happened in COVID - it already started - a firm surveyed 930 items on Amazon and found prices rose from in 2 weeks from 9 April by an average of 29% - wow!
- 10% tariffs on all goods plus 25% on Canada, Mexico, steel and Aluminium and cars and parts (some exemptions) will also cause price rises
- a negative flow on impact on house prices (ie lower) in a market which already has huge inventories (ie very high level of houses unsold) which will cause more issues like in GFC

In summary, big shortage of goods, much higher prices, potentially millions more unemployed and a recession. So why is the stock market in the US so high? No idea, maybe they believe Trump will cave in and get rid of tariffs (they are dreaming). In addition if the share market falls significantly the wealth effect will make a recession even worse.

How bad will the situation get? No idea but it does depend what Trump does. But a big reality check is coming to investors in my view and soon. I cannot see long term bond rates falling under this environment ie they may increase like they did in April and the US dollar may tank. ALso need to remember that Trump pauses much higher tariffs above 10% to about 90 countries until early July.

I am uncertain of my uncertainty pretty well summaries the current market! ha ha