You can hardly blame Trump for playing up the stock market’s spectacular performance whenever anyone challenges the way he is conducting the war, or claims the jihadists are winning. Even in the editorial rooms of the New York Times and Bloomberg, where a virulent strain of Trump Derangement Syndrome still lingers, news editors are finding their caustic opinions overwhelmed by the bullish tide — make that, tsunami — on Wall Street. Although details of a cease-fire have yet to be worked out, never mind the terms of a peace agreement, stocks have exploded into their steepest rally ever, recouping five months’ worth of steady losses in just 17 days, while racking up gains during that period equal to the amazing, six-month bull run-up of 2025. Can tens of millions of investors be wrong? Or is genuine peace about to break out, as Trump would put it, like nothing the world has ever seen before?
To answer that question, harken back to an iconic graffito from the 1970s: “Eat Shit! Can a hundred trillion flies be wrong?” If you fail to see the connection, let me spell it out: A superheated stock market is the last place everyone should look for evidence that all is right with the world. Moreover, Trump’s eagerness to direct our attention that way makes it even more foolhardy.
Bipolarity’s Sweet Spot
Why? Because the stock market is a rabid beast whose mood swings have always ranged between reckless exuberance and suicidal despair. Within the broad middle of this bipolarity, it acts like a giant carnival midway, hyped by barkers who use ‘research’ to support extremes of overvaluation that currently make the South Sea Bubble of the 1700s look like a shingles-and-siding hustle.
Moreover, the rally’s aberrant strength suggests it is driven mainly by a short-covering panic rather than by bullish buying. Or should we infer instead that investors actually believe world peace is about to break out, or that oil prices will quickly fall back to bargain levels following the most severe shock that energy markets have experienced since prices quadrupled in the early 1970s?
Deflationary ‘Cure’
As stocks soar into new record territory, serious doubts grow that the U.S. and global economies are headed into the best of times. Even in the unlikely event that fuel prices plunge, the spike that has already occurred is sufficient to exacerbate inflation that had already begun to squeeze middle-class Americans hard. Trump keeps promising the pain will end soon, but debt service alone has grown so large that only a catastrophic deflation can purge the financial system of its extreme excesses. The stock market is acting as though everything will turn out right, but, to repeat: the vertical rally is almost entirely short covering, and we should not deceive ourselves into thinking it will end well.
