David Stockman, the man widely credited as the “Father of Reaganomics”, delivered an alarming message to investors.
“The markets are hideously inflated,” warned Stockman on CNBC’s “Fast Money” this week. The former Director of the Office of Management and Budget under President Ronald Reagan urged investors to dump stocks and bonds ahead of the dangers that both Donald Trump and Hillary Clinton pose to markets if either is elected as President.
“If you don’t sell before the election, certainly do it afterwards. Government is going to be totally paralyzed regardless of who wins,” he said. “There could be a 25 percent draw down on markets.”
Stockman posits that, under a Clinton administration, official investigations and new hacked email disclosures from Wikileaks will be non-stop. Furthermore, he reasoned that the “house will become a killing field” for anything Clinton is trying to do. Ultimately, Stockman said the Democrat would enter the Oval Office bruised, bloody and all but lacking in legitimacy.
“For six months, or even longer, there will acrimony, there will be brinkmanship, there will be paralysis. There will be a swarm of house committees doing investigations from all of these wiki leaks!” Stockman said of Clinton’s hypothetical early days in the White House.
“Therefore, there will be no baton handed off from the Fed to fiscal policy as we slide into recession,” he added.
Stockman, who spent twenty years on Wall Street with Salomon Brothers and Blackstone and served as a Congressman for Michigan, said the IRS is the government agency that is the clearest indicator that a storm is brewing over financial markets.
“The IRS said that last year revenue was up 1 percent and, in the last quarter, it was down 4 percent,” explained Stockman. “And, in the five months since May, payroll withholding was barely keeping even with wage inflations. That means the work hours aren’t happening.”
From here, Stockman reasoned that with a paralyzed congress, a soon-to-expire debt ceiling, a powerless central bank and a market that’s been flat for 700 days, that the pieces are in place for a crisis.
“We’re in the same place today as we were in December of 2014,” explained Stockman. “There’s massive risk. So what’s the possible reward?”
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