Welcome back to What’s Happening Now, our last Monday report for an eventful year in which equity markets reached for the stars in an undeniably strong year-end rally which we called in early October.
Investors are closing out 2019 $6 trillion richer, with the S&P 500 Index up 29% and the Nasdaq up a whopping 36% heading into the last two trading days of the year-a classic melt-up driven by low rates, bail outs and money printing.
No shocker there-debt and bailouts are the Fed’s new “growth industry.”
So, out with 2019 and in with 2020.
The bustle of a New Year is often refreshing. That sense of a fresh-start at midnight this Tuesday can seem cleansing as we leave another Fed party behind us while reaching for champagne with friends and family.
It’s striking to us though, as we close 2019 and page through the Main Street Media, that another recession seems almost unimaginable – priced out for some given the yearend rally, or ruled out by others as just unthinkable.
Having Hope vs. Having a Plan
But does hope really breed eternal?
Well, hope does breed inspiration. Inspiration breeds New Year’s Resolutions of new personal achievements ahead, new ambitions, new confidences, relations and higher expectations for a better 2020.
As for the markets, hope allows us to equally wish for better days with less dirty politics, less insane stimulus, less global confrontations and more market highs for years to come.
In short, for many investors, there is a sense that our Rich Uncle Fed will take care of us in 2020, yet again, as it has done year after year after year…
Alas: No more recession talk-it’s no fun at a party.
We don’t wish to spoil Tuesday evening’s celebration, so party-on with the special someone(s) in your life, but as for the Fed party we’ve been enjoying since 2009, please know that when it comes to your money, hope has never been, and never will be, an investment plan.
Sure, we can hope the next recession is off the radar screen for 2020 – that’s been the Fed’s investment plan for years, and we’ve said many times that the Fed is a powerful force for delaying reality in the current Twilight Zone of debt without tears.
But the Fed has by no means outlawed recessions, as we reported here; it is just a master at postponing them (year after year after year…), and hence making them worse down the road. Meanwhile, its record for forecasting recessions is 0 for 9.
But forecasting is for crystal balls, tarot readers and prompt reading media bubble heads, not smart investors. As stated recently, we are way past bull vs. bear debates.
But speaking of bubble heads…
Bloomberg’s PR department recently observed that “Recessions rarely happen after years with rallies this large.”
That’s a pleasant thought.
Unfortunately, it’s also factually and empirically not true.
We’d remind such journalists to look back to the dot.com crash in 2000 or the mortgage-crisis crash in 2008 and re-phrase their headlines to: “Recessions consistently happen after years with rallies this large.”
The falling white lines below following the prior two market bubbles make this undeniable. It’s in the rearview mirror…
Despite such stubborn facts, the media spin-sellers also declare that the world is richer after 2019 and will just keep getting richer and richer, right?
Well, again… the true answer is actually no.
The world is not richer at all, it just has infinitely more debt that at any other time in history, and debt is not the same as wealth, as 90% of Americans who juggle more than three credit cards can attest.
Furthermore, debt bubbles masquerading as “wealth peaks” get proportional in their levels of both delusion and risk. Stated otherwise: The higher the rise, the harder the fall.
Take another look at that graph above. We ask you as we enter 2020: Does this most recent bubble look like a peak to you?
If so, do you think it’s wise to assume the S&P Index is going to keep rising at this pace?
No. And here’s why.
This is a stimulated and rigged rally without substance. Economies around the world are not doing well or “getting rich.” In fact, most nations are growing poorer as the “Twilight Zone” stock cliff gets higher.
When markets correct on euphoria, markets often get marked down by 50%, as they did in 2008. Look again at that chart…a 50% selloff from these nosebleed heights would devastate, well, just about everything.
The real question coming into 2020 is thus not how to continue to bubble-up, but rather how to manage the risks of a potential bubble-down at worst or, at best, how to deflate this balloon before it pops, we pop, or China pops.
After all, we two gorillas. China and the U.S. are the biggest gorilla’s in the room heading into 2020.
Gorillas in the Mist of Trouble
Have a look at these two chilling charts put out by the Financial Times as this new decade roars in.
If you thought the current U.S. trade war with China is at the core of China’s emergence as THE dominant global exporter, think again. This has been going on for a very long time.
Backtracking two decades to the year 2000, the U.S. (in blue) once dominated global trade as the world’s most powerful exporter…
Now, fast forward two decades to 2019 (below). China (in red) is killing it – displacing the U.S. by becoming itself the world’s most dominant exporter.
Good for China? Maybe. But for all of China’s dominance on the export front, this gorilla is in trouble domestically as local bond defaults soar (chart below).
Whatever one thinks of China (and we are hardly big fans ourselves…), we must nevertheless concede that it’s not so good for the global or US economy when the world’s leading gorilla is in trouble or on the verge of a “Minsky Moment” that could rattle the globe (a notion coined by economist Hyman Minsky when excessive debt builds toward excessive defaults).
As for the U.S., we’ve made no secret about the unprecedented levels of toxic debt it carries or the deadly Minsky Moment it too faces.
So, here’s the bottom line for both these gorillas as we turn the page on 2019: All in, global growth just ain’t what it used to be and neither the U.S. nor China is an exception.
And it takes growth, not more debt, to repay debt – pure and simple. Common Sense.
Unfortunately, neither the Fed, the Peoples Bank of China nor the cheerleaders in the Main Stream Financial Media seem to be publicly concerned about growth or common sense.
So, party-on this New Year’s Eve… that’s our plan. Dream and hope ahead for those you love, the lifestyle you enjoy and the goals you have set for yourselves; there’s certainly nothing wrong with that!
But when it comes to your money, the way you invest or the portfolio you are preparing in a global market devoid of common sense, you’ll need far more than hope to get ahead-you’ll need a plan.
Fortunately, we’ve been at the drawing board for a long time building such a plan for you, one which we’ll be sharing in early 2020. Our portfolio plan appreciates making money, but does so with an eye toward respecting common sense and managing risk, two qualities our subscribers both share and expect.
Also, in the New Year, be on the lookout for our soon-to-be-published book, Rigged-to-Fail: An Insider’s Take on the Ill-Fated Economic Voyage Ahead.
Tom and I have penned and charted this tomb so investors like you could single-source reference Where We Are, How We Got Here, Where We’re Headed and How to Prepare for what’s coming. This book sums up the best of our thinking and arms readers with a no-nonsense primer toward becoming the most informed investors on the block.
We expect to have this available by March 1st, along with our portfolio solution for subscribers. Until then, be patient, as we are confident the wait is worth it.
And of course: Have a Happy New Year!
Matt & Tom
8 responses to “Party on New Year’s Eve?”
December 30 2019