Temporary Calm in the Stock Markets Amidst Growing Conditions for a Second Crash

As the proverb goes, “a drowning man is grabbed by his hair.” Similarly, those trapped in the stock market view the first moments of calm after a major crash with skepticism. Seasoned market veterans advise their good clients to take advantage of the first ‘rebound’ to move closer to an exit, especially when stuck far from it. On April 2nd, except for Trump’s circle and WS Hedge Funds, who had been unloading assets for 10-11 weeks before the ‘day of liberation,’ the vast majority of small investors in the US and others globally were hunting for big opportunities and moving away from risk exits. The relief on Tuesday was indeed a breath of fresh air after losses amounting to trillions in WS and international markets, including our own tiny Athens Exchange. However, the causes behind the crash have not only persisted but multiplied if we look at the reality. The trade war has taken on new dimensions beyond those of April 2nd: Trump’s team explained that tariffs are here to stay, regardless of negotiations. China, as explained by Stephen Moore, head of Trump’s Council of Economic Advisers, showed no interest in negotiation and responded by increasing tariffs on American goods. Washington made clear that one cannot remain in the dollar cooperation space while maintaining open trade channels with China, posing additional dilemmas. The European Union, awakened from decades of lethargy, records its inadequacy against the new environment. Between the Scylla and Charybdis of the US-China conflict, it struggles to take a unified stance due to differing survival interests among member states. Additionally, the violent movement of capital post-April 2nd created massive coverage needs due to margin calls, leaving both banking systems unsure if they can cover and remain stable. Central banks have yet to decide their moves as the horizon remains obscured. Meanwhile, China moved independently, allowing the Yuan to slide to very low levels. The Fed, BoJ, ECB, and BoE have not yet signaled how they assess tariff impacts on exchange rates. When these numbers start moving in the forex market, neither bond nor stock markets can speak of calm again. Statements from central bank officials currently highlight the visible threat of global recession. The world has changed since April 2nd, and returning to the previous state is impossible. The horizon now evokes memories of the 1970s after Nixon canceled the Bretton Woods Agreement, albeit in a far more explosive and uncontrollable environment. Today, the dollar sits atop an uncontrollable debt bomb from which it cannot escape without catastrophic consequences.