Friday, December 21, 2018

Conditions Necessary For This To Morph Into A Protracted Bear Market

At this juncture, for the current decline to end up being more than a steep correction in an ongoing bull market there’d have to be a willingness on the parts of Trump and Xi to together bring on the next global recession. And, in Trump’s case (Xi is president for life), to see his political career end in the most unflattering fashion (yes, recessions murder political careers).

As it stands, the trajectory of the data looks markedly better than it did during the 2011 correction (S&P -19%) and on balance better than the back to back late 2015, early 2016 corrections (-10% and -12% respectively). Therefore, odds, at the moment (always subject to change), suggest that this is one of those necessary pauses that refresh in what is an aging bull market.

The good news is that bull markets never die of old age: They typically die under the weight of cyclical excesses (like tech in 90s and mortgages/real estate in the 00s), historically high stock valuations (like the 90s), a subtle rolling over of macro conditions (like both), and a state of blind investor euphoria (like both).

Those are clearly not the conditions we’re currently facing…

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