Stockman On The Coming Fiscal Bloodbath: "Sell Stocks, Sell Bonds, Buy Gold"

Tyler Durden's picture

Authored by Craig Wilson via The Daily Reckoning blog,

David Stockman joined Greg Hunter of USA Watchdog to discuss what he views as a fiscal bloodbath and the biggest bond market bubble to ever hit the global economy.

To begin the discussion, the Washington insider was asked about the cash on hand in the United States federal budget and the fiscal conditions that Donald Trump faced where he unloaded, “I think it is a total calamity. They capitulated entirely.”

While speaking on what cuts Trump proposed Stockman pressed, “He wants to cut $18 billion in order to ‘balance it out’ from domestic programs like the the National Institute of Health (NIH), Public Broadcasting Service (PBS) and a lot of things in between… and that’s just a down payment for the big reduction proposed for the full fiscal year that starts in October. That proposal is looking for $54 billion for defense and other domestic priorities, met with $54 billion of cuts on the domestic side… the problem is, Trump went to the Hill and they got totally fleeced. They ended up with most of the increases they wanted because that is the way Washington works. More money for the defense and border pork barrel.”

With contrarian style, David Stockman then pointed out, “He ended up with no cuts at all. He now has $30 billion in increases and a statement from Congress, that was on a bipartisan basis, allowed that we’re in control – you can have your defense and other priorities but we’ll march the budget higher together. I think that’s the opening gambit for what’s going to happen in the full year as the Congress struggles to try to pass bills for fiscal year 2018. They’re going to raise defense and all the priorities, they’ll cut nothing domestically…”

“The whole thing is headed for a real fiscal bloodbath sometime this summer or fall when they run out of debt ceiling (money) and can’t borrow any more to pay for all of this. When they use up the cash on the balance sheet right now… we’re going to be in a huge shutdown mode.”

Greg Hunter inquired with Stockman over what budget deals he would feel Trump and GOP leadership could make that would signal serious change. The former Reagan Budget Director argued, “First, he would need to rethink making defense great again. It is already far greater than we need. We don’t need that $54 billion for defense. Second, he promised he wouldn’t touch social security or medicare… A lot of people need them, I recognize that, but there are millions of affluent retirees who never earned all of the benefits they’re getting.”

When asked what his view on a Congressional budget deal is and what it could mean for jobs and the economy Stockman relayed, “There will be panic in the financial markets. This is not priced in. The market isn’t expecting anything. I think it will cause some very difficult times.” The interviewer then asked what his expectations on a government shutdown would look like with Trump.”

The author noted, “I doubt he’ll go for a shutdown by choice. The leadership is not going to stand for it. They have a false idea that Republicans can govern by keeping the Washington Monument open even if we’re bankrupting the country by piling spending. I don’t think they’re going to elect to have a shutdown. What I think is going to happen instead is they’re going to run out of borrowing authority with the debt ceiling, it is now frozen on March 15. We’re locked in at $19.8 trillion so when they run out of cash in a few months, they’ll need a majority in both houses to vote through a multi-trillion bill in both houses. They won’t have the votes.”

Stockman sounded the alarm, “This isn’t speculation, this is what is coming down the pipe. I don’t think it is even remotely anticipated by the markets. It is not priced in at all. That’s when you get huge disruptions in the financial markets. When they’re hit by surprise or black swans, that’s where we’re heading in a matter of few months.”

After the host pushed for clarity over his bubble forecast Stockman urged,The market is insanely valued right now. They were trying to tag 2,400 points to close out last week. The point is, that represents about 25 times the trailing earnings for 2016 at a point where we’re already into a “recovery” that’s lasted 96 months. Almost the longest in history. What the market is saying is that we’ve reached a point of full employment, forever. [They appear to be behaving] as though there will never be another recession or economic surprise.

“The market is pricing itself for perfection for all of eternity. This is crazy. We’ve got headwinds everywhere. The auto industry is now starting to roll over. The red ponzi in China has only a matter of time before it explodes. We now have debt for the household sector above where it was for the 2008 crisis. I think the market could easily drop to 1,300-1,600 by 30% or more once the fantasy ends. The government will show its true colors. We are headed for a fiscal bloodbath.

Stockman voiced his concern for clarity remarking,This crazy notion that there is going to be a Trump tax cut and fiscal stimulus must be put to rest once and for all. It’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporates $10 or $15 trillion of debt over the next decade. Week by week, slowly the market is beginning to figure this out. What it means is, all of the corporate insiders are selling stock like there is no tomorrow… where institutional sales of stock have been going up since the election and what we have is the usual end of the cycle. This is the greatest suckers rally we’ve ever seen.

When asked what he would recommend to protect yourself he urged, The main thing is, get out of the markets. These markets are unstable. They’re rigged and unsustainable… there is no reason to own stocks at this point in the game. It is so overvalued that maybe you can get another two or three out but you’re facing a 30% or 40% down. The risk versus reward is horrible. The bond market is one giant bubble because the central bank’s have been buying bonds worldwide. They’re buying trillion and still buying a trillion or so on an annual basis. All of that is coming to a halt.”

In offering his bond market and central bank analysis he urged, “The Fed has finally run out of dry powder. They’re out of the bond buying business and even talking about initiating shrinking of their balance sheets. The European Central Bank (ECB) is near the end of its money printing spree. Even in Japan, which has gone off the deep end with quantitative easing, is beginning to have second thoughts.”

“Everywhere in the world, the central banks are finally getting to the end of the road. There isn’t going to be anymore money printing. That’s going to leave a giant mess on the doorstep of the fiscal authority. It is going to make the bond market a particularly dangerous place. Bonds are totally mispriced. If the central banks had not bought $20 trillion worth of government bonds worldwide over the last two decades, the yield on debt everywhere would be much higher.”

Stockman warned on the bond market environment that, “We have, what is roughly a $100 trillion global bond market (corporate and government) that is the biggest bubble ever seen. The advice is, get out of the bond market and stock market. Buy gold. Not all at once. When the financial system finally unwinds and the monetary authorities are discredited the one hard asset in the world is going to have another day in the sun.

He reminded viewers, “The gold market is relatively small in comparison to the size of the equity market or bond markets. The gold markets are only a fraction of that. When the panic comes… the price of gold will rise dramatically.”

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BeanusCountus's picture

Well, that certainly has worked great lately.

Creepy_Azz_Crackaah's picture

When?  When should I sell stawks and buy gold?  Seven years ago?  Now?  In five years?

hedgeless_horseman's picture

 

The whole thing is headed for a real fiscal bloodbath sometime this summer or fall when they run out of debt ceiling (money) and can’t borrow any more to pay for all of this

When they run out of debt ceiling money?

lol

Everywhere in the world, the central banks are finally getting to the end of the road. There isn’t going to be anymore money printing.

Are you fucking kidding me?

 

Come to Marfa next month, David, and try to float that kind of horseshit.

http://www.zerohedge.com/news/2017-05-09/our-schedule-first-zerohedge-sy...

auricle's picture

The CB's can buy infinite amounts of debt. What is Stockman talking about? 

HopefulCynical's picture

Aww jeez, not this shit again.

No it's not going to happen this summer because the presses run out of ink.

There will be a six sigma event that catches everybody flat footed. It could happen at any time - think giant meteor, aliens, etc. But we're really looking at a global pooch-screwing by the CBs and their cronies, which is a few years off yet.

Stack on pullbacks. Have a plan. In the meantime, ignore the predictors. Watch the conditions, not the clock or the calendar.

Jimmy Jimmereeno's picture

Stockman's views are sometimes interesting, maybe because he was a DC insider years ago.  However, he is a 20th century schooled economics theorist incapable of intgegrating (false) theory with the actual world and fully ignorant about the reality of economics.  He graduated from higher education institutions that had not a single qualified, bona-fide economist on their faculty.  He therefore knows not about which he speaks.

The above article's concluding Stockman quote, "The gold market is relatively small in comparison to the size of the equity market or bond markets. The gold markets are only a fraction of that. When the panic comes… the price of gold will rise dramatically..." serves to demonstrate Stockman's ignorance of economic reality.  He perpetuates the common fallacy that the gold market is minuscule in comparison with equities and debt.\

In point of fact, gold unlike other financial vehicles is infintely elastic.  Just as importantly, it cannot be debased.  The world's total gold inventory, regardless of its quantity in 1971 or in 2017 or some point in the future, will easily accomodate the revaluation of the world's financial asset base. Gold is the only incontrovertible asset; in the time of an ultimate duress all other "assets" will be revalued in terms of gold.  This is how that works:  gold is not revalued upward, instead all other assets are revalued downward.

38BWD22's picture

 

 

JJ

I do think considerably higher of ex-DC insider Stockman than the irritable and whiny Paul Craig Roberts.

But "bona-fide economists" at any of his schools does not bother me, as those guys have a worse record predicting things even than the Bearing Guy...

Completely agree with you re gold.  The market for gold is much bigger than the paper-pushers and .gov shills claim.

Jimmy Jimmereeno's picture

Mea culpa.

I just checked Stockman's education background and acknowledge my absolute ignorance about it in the comment above. 

According to CiaWikipedia, Stockman has no economics background whatever (unless maybe he studied the subject sub rosa).  He received a BA in History from Michigan Stgate in 1968 and he was a graduate student 1968–1970 studying theology at Harvard.  The fucker's as old as I am, has no acadamic background in economics as well as no skin in the game markets exposure - of which I've made my life's career - and holds himself out as some sort of expert. 

Nothing personal, Stockman, but fuck you and the horse you rode in on.

sincerely_yours's picture

“There will be panic in the financial markets."

Understatement of the century.

BeanusCountus's picture

Hey. I personally believe someone who has "no acedemic background in economics" is not necessarily a liability. Last time I checked, many alumni of the "prestigious" universities are espousing the "debt doesn't matter" mantra for monetary policy. Any reasonable person knows that is not true.

That said, your point on markets exposure is spot on. This isn't grandma's stock market anymore. Ignoring current monetary policies because you don't agree with them will get you... Nowhere.

jaxville's picture

  You can be an expert on economics by merely reading a few books. 

SoDamnMad's picture

What's the price of gold in Peru? What form?  Do they pan for gold like in Alaska?

agNau's picture

I think the point is, when everyone wants gold it disappears.

BullionBlast's picture

   You and others are quick to criticize but offer no advice. What Stockman warns about is valid. The Fed prints $, artificially pumps up the stock market, has brought zero percent interest rates and the GDP is 1.5%. The US has outsourced it's industry and we now have a $20 trillion debt. Trump says he needs $1 Trillion for social programs.  If you spent one million dollars a day for the past 2000 years you would only have spent 3/4 of a trillion! So the US has no intent of paying down that debt.

   The jew bankers of the Fed and Wall Street have bled the US to their advantage. When the economy collapses they will blame everyone but themselves. The bond market is in deadly trouble, pension funds are not going to be able to pay what they promised, 4000 more retail stores will close, car sales are sinking.....what is 'old fasioned' about reporting this? Insider and institutional stock selling  is going into overdrive and this is going to end badly.

   The Fed cannot 'keep issueing debt forever'.  Warning about what is to come is the correct and right thing to do. The US, Europe and Japan are going to be in a depression for the next 20 years and the Asian sphere will prosper because they will use gold to back their currency in some way. The US and Europe won't. Wall Street and Federal Reserve bankers are going to be running for their lives in a few years.

 

jaxville's picture

   Actually they can't nor would they want to if they could.  They can buy a little to maintain stability (keep their scam going) but why on earth would they want to buy their own paper that they would otherwise get property for?  They aren't as stupid as the general populations that see their paper as having value.

yogibear's picture

Stockman will be dead by the time the central banksters allow it to happen.

Ajax-1's picture

I never dreamed that the banksters could artificially levitate this thing as long as they have. However, I am certain that they will implode it at a time of their choosing and will orchestrate an event to create plausible deniability.

bardot63's picture

Hasn't worked if your end goal is to own paper debt tickets, you're right. 

HRClinton's picture

Buy & Hold PM for 1 year. Revisit in1 year, if we're not at war. 

Look at it this way... stocks may rise further, but so will PM. PM will not drop 20-50%, but stocks might.

Jimmy Jimmereeno's picture

Look at it this way:  your statement about "stocks" and PM is purely opinion and has no basis in fact.

If you are including the price of silver in your "PM" category, historical precedent suggests that silver will trade into the single digit price zone before the current down cycle concludes.

Edmund Dantes's picture

hmmm, silver costs around $20 to mine, so please explin how it goes to single digits, unless the jooz  decide to keep paper shorting it

jaxville's picture

  It may cost $20 to mine but that which is obtained through public bullion sales or scrap recovery is somewhat less.

   Dealers are now buying scrap and bullion from the public in volumes close to what they were during the great melt. 

  People almost everywhere are selling due to economic pressures and the shit show hasn't even begun in earnest.  Not many are selling in capitulation. 

  There are still lots of stackers out there but dealers do not have to order from mints to meet the demand.  They are buying their inventory across the counter.

jaxville's picture

  I forgot to add that industrial demand is off currently as most global economies are slowing down.

  Silver; and more importantly, gold are going to be very important as the imploding economy makes it all but impossible to service existing debt and currency vanishes.  If you buy into the mainstain lie that gold does not do well in deflation.... gold (silver) will make the move of a lifetime but about two weeks after you have sold your stash.

  Before you sell any, look to the health of the financial sector.  The stuff we call "money" is merely a product of the financial sector.  When the banks and insurers are dropping like flies, their main "product" is on borrowed time.

  Jim Sinclair may not see deflation coming but he is 100% spot on when he says "Get out of the system".

  Don't let it slip your mind for a moment that the same filth that own our gov'ts and financial sector own the media as well.

Anteater's picture

Corporate taxes cut.

High income taxes cut.

Estate taxes eliminated.

Sell stocks and bonds!? Que?!

Stockman is either nuts, or selling sh't.

The markets are going to party like it's 1999.

I can buy a Lexus, an Escalade and a Bentley!

Let's buy another McMansion! Let's buy a Six-Plex!

The accountant says we have a million a month more to spend!

BeanusCountus's picture

All in!!!

Not really, but none of those things are bad.

Enjoy the new lexus. Might I suggest a used one? Get a 2014 loaded ES-350 with 30k miles for $25K. Great car.

Skip the McMansion.

Dr. Engali's picture

How's that song and dance worked out for the past eight years David? Sure precious metals are an important hedge, but if you don't adapt you've missed out on an opportunity to earn moar fiat to buy gold and silver.

BeanusCountus's picture

Smart guy, he's just ahead of his time. Consistently for the last 5 years or so.

Ajax-1's picture

I place Stockman in the same category as Gerald Celente. Neither have a good track record of making timely predictions.

CJgipper's picture

There's no difference between early  and wrong.

Oldwood's picture

And all of us rich fuckers who have been forced to pay into the SSI ponzi for our entire lives are now undeserving of our unaffordable benefits.

I'm glad David is doing so well that he can afford such a "liberal" point of view. What we paid into is now simply welfare for "those" entitled.

Ignorance is bliss's picture

Everyone knows that government debt no longer matters. Stockman is an antique from another age...wake me up when reality matters.

G-R-U-N-T's picture

Sorry, I'll buy gold when it dips under 1000. Also, Stockman has been pounding the collapse of equities, sorry but the market is going to continue to go up and up and up, indeed there may be a pull-back, but the Dow will coninue to rise past 30k, the S&P will also rise, even the Russel 2000.

Edmund Dantes's picture

You'll be waiting for the rest of your life to get REAL gold under $1k. you are worse than stockman, you have no thesis to back up your bullshit. I think zh has been compromised  by shrills such as you, who post for the benefit of the bankers. I have noticed here , that although Stockman might be off his gam ehere , he makes more sense than most of you idiots.

ThirteenthFloor's picture

Stockman has been on this for the past few months relentlessly. That being said, there is no disputing "when all else fails go back to the basics". Markets are failing.

venturen's picture

they are....they are at a RECORD and all the world's central banks are printing as fast as they can. Dow 100000 is possible.

Moral Hazard died and was buried. No amount is too ridicolous and until the people string them up....they are going to print and it is all going to 1% of people!

Oldwood's picture

The only way this blows up is if we have some true "black swan" event. Otherwise, they will simply continue to do what they have been doing while our quality of life slowly declines until we resemble something like Venezuela and then suddenly, without ever seeing it coming, will desperately be looking for someone to blame.....it couldn't have been us...

Everybody even slightly paying attention knows what is going on and also understands to defy it is as productive as standing in front of a speeding train to stop it. It will come to the end of its tracks soon enough, all by itself.

giggs's picture

Stockman is a legend but this schtick is getting tired.  His thesis is undoubtedly correct but he ought to quit trying to time the crash.  It really hurts his credibility

G-R-U-N-T's picture

I don't think Stockman could forecast a solar eclipse!

deimos178's picture

only gold? what about silver? and guns? and bullets? 

Ajax-1's picture

Don't forget the booze and hookers.

SkunkyBeer's picture

Same old BS from Stockman. Why would any of the Central Banks stop printing? Especially Switzerland, the SNB is desperate to ruin the value of the Swiss Franc.

Go ahead, follow his advice, short Tesla and Amazon, see how that works out for ya. 

Oldwood's picture

Everybody who makes a living from public performance has a repeating theme....it becomes their trademark, and they will NEVER walk away from that. Stockman may be a true believer, but I would bet he is like everyone else and simply uses his media "credibility" as an earning tool, ideology for power, not principle. The rest of us are not that different as we bitch and moan about this shit yet get up in the morning and play the game day after day. What we are watching is human nature playing out its cycles as it has always done. We just have to hope that our technology actually saves us from ourselves rather than facilitating our extinction.

Conax's picture

"In a few months ..." something big is always going to happen.

"In coming years this or that will finally occur."

Then, nothing happens. In the Matrix anything's possible including nothing happening.

abenomicstimebomb's picture

Stockman has been dead wrong.  What happened to his "After March 15 Everything Will Grind To A Halt" government shutdown warning?  Nothing.  His warning last August about FANG stocks too high?  Look where they are today.  Watch this current call on "Buy Gold".  Based on his track record, gold could drop below $1000 and I would not be surprised.  Timing is everything.  He will eventually be right but he's way too early.  

Reality Creator's picture

Boo!

I'll believe this shit when there is no product placement in the articles. Tell me the shtf without selling gold. I'll believe it when he comes out and says the shtf and you're fucked with no solutions.

The SHTF is for real when all is lost and there's nothing left to do to save yourself.

soyungato's picture

But he said the Shit was going to hit the fan March 1. 

Linglishboy's picture

10 years and running of buying gold hahaha

innertrader's picture

Stockman has been dead wrong for 10 years and I've been wrong since 1440 in the S&P.  Now what?  I'm not saying he's wrong, he has simply been wrong for 10 years!  EVENTUALLY he will be right, if he lives long enough.... just like me.

HOWEVER, in the mean time, I've been Trading a basic commoditiy and focusing ONLY ON IT and I've been amazingly ON THE MONEY!  Therefore, I'm going to keep Trading ONE Basic Commodity Market!  I simply love it!!!!

 

TRIUMPH with TRUMP!!!