rxbond,
My assessments about the economy and the stock market have nothing to do with politics. I never knowingly let my politics interfere with the making of money or the maintenance of wealth. My family's security depends on my unbiased assessments of the economy and stock market. So I take that very seriously, more seriously than really anything in politics, except when politics turns Socialist, then it becomes existential for my family's money. Having said that, my belief we are headed for a recession is not a ding on Trump, it's just a fact of the business cycle. Economies move up and they move down. They never move up forever, except in fantasyland economies like China's, where statistics are made up. Trump gave our economy one more breath of fresh air with his business friendly policies, but this economy was already tired and the lackluster up cycle under Obama was ready to rollover. Down cycles are great for clearing out the malinvestment and prepping the economy for an invigorating up cycle, if we let them happen. We don't need constant monetary (Fed) or fiscal (Congressional) interventions. In fact, it's best when they stay out of it and let the horses run. For the most part, that is what Trump has been doing with his 2 for 1 regulatory policy of eliminating 2 regulations for every new 1. His tax cuts were great stimulus, but I am of the Austrian School of Economics, so I prefer when our leaders stay out of our businesses. Even so, when it comes to business, Trump is our man, but even our man can't abolish the business cycle.
Here's why I believe we'll be in recession either this year or in 2020...and the sooner it happens, the better Trump's chances of re-election in Nov'20. Many leading indicators are turning down. See ECRI, whose long leading index is predicting recession and whose weekly leading index has been negative and trending down for some time now. Housing starts and construction have rolled over. Baltic dry has crashed, losing 2/3rds of its value since mid-2018. Unemployment is at record breaking lows, which almost always signals recession dead ahead, as it lags the boom greatly. Manufacturing PMIs are decelerating and looking terrible. The tax cut bump pushed EPS to great new highs in 2018, but 2019 comparisons to 2018 will show an earnings recession unless some new catalyst gives us a new bump. Absent a new round of QE and if the Fed continue QT, then there will be no new stimulus. The strength and breadth of the stock market is not looking good. It looks distinctly like it will retest the lows of October and if the stock market starts making new lows, that typically is a great leading indicator of recessions. The Atlanta Fed's GDPNow says we're stumbling along at 0.25% GDP growth, which anything below 1% is generally recession territory for the NBER. The front end of the yield curve (2s & 5s) has been inverted for awhile now, which is an early warning for the rest of the curve. The fact that the Fed already slowed down the pace of rate hikes, means they know something, and the Fed is almost always behind the curve on predicting recessions, meaning they are always reacting, not getting ahead of things like they claim. That means that the indicators they watch have already rolled over.
Anyway, I could go on in this vein for a long time. The bottom line is there is a very massive six sigma event going on right now, a dissonance between stock market valuations and fundamentals in the economy. They are totally and utterly divorced. Things will revert to the mean, but the longer that is pushed out into the future, the more violent the reversion will be. This time will not be any different. I have already positioned my portfolio accordingly. I hope for the best, but prepare for what my analysis tells me. |
