We look into key market factors to determine whether we will see 1) another continuation of the bull market, 2) a sideways pattern or 3) the start of a bear market. It’s becoming clear.
At this point, markets have become quite enamored with the notion of Quadruple Puts – the Fed, Trump, Xi/Beijing and corporate buybacks. When historians look back at this period, they will surely be baffled by the markets’ capacity for disregarding major risks and negative developments. We’re at the stage of a historic – and especially protracted – cycle where it has repeatedly paid to ignore risk. Over time, the successful risk ignorers and dip buyers have ascended to the top. Risk-takers systematically rewarded; the cautious banished.
Why is it unstoppable? Because this Bull has NOT been driven by the economy or profits. When the driver ends, the bull market ends. In the meantime it continues to frustrate those using historical tools that worked so well in prior bull markets. Invest safe, invest smart starting today.
The one thing about market tops is the forecast for the future HAS to be good and there HAS to be expectations for it to “continue for years” otherwise the selling would have already started.
The market is sitting in a precarious position as the trade deal with China falters.
In my 30 years of studying Bubbles, a few things have become clear – I would argue indisputable: They always burst.
Who needs an economy when you can print-baby-print or leverage up the whole stock market via buybacks on the open market or with leveraged mergers and acquisitions that come with golden parachutes for the CEOs.
Beijing has had ample time to research Bubbles, yet they still have limited actual experience with Credit booms and busts. China has no experience with mortgage finance and housing Bubbles. They have never before managed an economy with a massively leveraged corporate sector – with much of the borrowings via marketable debt issuance. They have no experience with a multi-trillion (US$) money-market complex – and minimal with derivatives. Beijing has zero experience with a banking system that has inflated to about $40 TN – financing a wildly imbalanced and structurally impaired economy (not to mention fraud and malfeasance of epic proportions).
The bottom line is consumer spending which makes up the bulk of the GDP model was down and business investment was down. And large inventory building is never a good sign and points to weaker growth in the out quarters.
I am reading a lot about the divergence in small caps from the large cap funds. It is worth watching, but it might just be seasonal tendencies.