The making of the bear case: DOGE and tariffs may not cause a recession, but all this "don't mind the stock market" on national TV could of course be a sign of nasty things to come.
One issue is, how do you get an economy addicted to government deficit spending off this drug?
Another issue is, how do you get Corporate America addicted to cheap labor overseas off this drug?
And a third issue is worming its way into the detox conversation: The stock market has gotten addicted to the government’s deficit spending, to the fat profit margins from offshoring production, and to the Fed’s erstwhile free-money policies, including trillions of dollars in money-printing, of which $2.2 trillion have so far been un-printed via QT.
They’re saying the right things, but it’s OUCH for stocks.
One thing we know from the past – and this may be even more the case now – a stock market rout after a majestic bubble, if deep enough and long enough, will trigger a recession.
We saw that during the Dotcom Bust. The S&P 500 plunged 50% and the Nasdaq plunged 78%, and it triggered a recession. In parts of the US that are depending on the stock market, it triggered a hard recession. In other parts of the country, there was barely a ripple. And it averaged out into a run-of-the-mill national recession.
I thought this was an interesting angle, even though it's a bit too bearish for my taste, and this may very well all be FUD.