Never a Recession Without a Bear Market

INVESTOR’S first read.com – Daily edge before the open
DJIA: 25,737
S&P 500: 2,869
Nasdaq Comp.:7,826
Russell 2000:1,456
Wednesday August  28, 2019
  9:04 a.m.
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gbifr79@gmail.com
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TODAY:
The only consistent thing here is inconsistency.  The only inconsistent thing here is the TRUTH.
How can a stock market find a level that reasonably reflects issues positive and negative when information  from the top is both inconsistent and false ?
      So far, the Street has endorsed a bullish posture, ignoring the potential ravages of a global recession and dysfunctional, untruthful  governance.
In a reasonable environment, this stock market should decline 20%-25% just for openers to discount the possibility negative news will prevail….and possibly it will get worse than expected.
      That raises the odds that if it becomes suddenly overwhelmingly obvious a nasty recession will smack the world solidly between the eyes, the market will go straight down IMHO 35% and stay there for a long time, NOT bounce back when the Fed waves its magic wand.
      Why?
Because it will take a long time for the U.S.  regain credibility it has lost in recent years and to regain markets that have been lost to other countries as a result of its poorly administered trade policies.
A very naïve Street is spoiled by a 10-year bull market mothered by Fed policy and verbal promises.  It doesn’t want the party to end, so it is hanging tough to an algo-driven buy policy, hoping negatives will vanish.
One lesson I learned long, long ago is that you cannot afford the luxury of delusion in the stock market for long – they keep score every day.  That  vision has been tested over the last 5 – 8 years, but  will bear out in time..
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TECHNICAL
TODAY:  The Street doesn’t know what to think about US/China trade. Trump says one thing Xi says another.      But tariffs are only part of the problem.  We are on the threshold of a global recession which has not yet been discounted by stock prices.
The Street thinks it can ignore a recession and move on to the next economic recovery.  There have been bear markets without a recession, but never a recession without a bear market.
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Minor Support: DJIA:25,717; S&P 500:2,861;Nasdaq Comp.:7,801
Minor Resistance: DJIA:25,846; S&P500:2,883;Nasdaq Comp.:7,841
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Tuesday Aug. 27  “News Whipsaw – Trade Deal On  –  Trade Deal Off !!
Just the mention of restarting trade talks in coming weeks is enough to give the Street hope for averting a recession and bear market. While this comes days after US threats to increase tariffs on China goods, it is what is said most recently that gets the attention of the Street.
Tomorrow may be something else.
That said, the market has some room to run before it hits resistance generally in the DJIA 26,300- 26,400 area (S&P 500: 2,925-2,940).
There is support at DJIA 25,500 (S&P 500:2,830).
We are in a tight trading range which can be resolved either way near-term, depending on news flow on the economy/recession and trade talks.
The Administration and Fed are  in panic mode to avert a recession in a presidential election year, so nothing would surprise me.
There is absolutely no consistency in government policy except inconsistency.
That does not breed CONFIDENCE, and confidence is the difference between  low valuation of stocks and ultra-high valuation which is where we are now.
These conditions are not easy for the nimblest of traders to exploit, so the average investor would be advised to stay on the sidelines with a healthy cash reserve.
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August 26  :STOP the LIES !!”
There is an enormous credibility problem here with the potential for a very bad ending for naïve investors who continually get sucked back into an historically overvalued market by inconsistent rhetoric from the Street, the White House and  the Fed.
Credibility and confidence  are key to how stocks are valued, the difference between a price earnings ratio for the S&P 500 of 20 or 29.
What 20 x earnings ?   Why not ?
The S&P 500 was priced below 20x earnings in the  turbulent 1970s and 1980s and during the 2007-2009 recession/bear market. Today’s domestic and international chaos is on par with, or worse than, any of those years.
After the G7 meeting over the weekend, what can we believe
– The U.S. will raise tariffs further ?  Talks with China will restart ? Tax cuts ? Index Capital Gains to inflation ?  or “We’re doing tremendously well…our consumers are rich” President Trump.
More sharp turns than a punt returner, a line dancer.
TWO IMPERITIVES:

1_Stop lying to us

2- Let the market find a level that discounts known and perceived positives and negatives. STOP the verbal manipulation.

 

Friday Aug. 23  “Don’t Rush to Buy Fed Chief Powell’s Hype”
The market will open on the downside after China just announced it will strike back on U.S. threat to impose tariffs on $300 billion of Chinese goods with its own tariffs on $75 billion of U.S. goods, levies ranging from 5%-10% (Sept 1 and Dec. 15). A 25% tariff on automobiles and 5% tariff on parts will become effective Dec. 15.
Fed Chief  Jerome Powell speaks before the Central Bankers Forum today at Jackson Hole, Wyoming. While President Trump is pressuring the Fed for one major cut in the fed funds rate, or several smaller cuts, it is uncertain Powell will yield to the pressure.
I expect him to say the Fed will track the nation’s struggling economy and cut rates if it sees fit.
Trump will attend the G-7 meeting in Biarritz, France this weekend. Climate change and trade tensions will be discussed among other issues.
     Thanks to a 14-point rise in Boeing’s stock (BA: see below) the DJIA was up 49 points yesterday instead of down 50 points. At 354, BA is the DJIA’a highest priced stock.  Since the DJIA is a “price-weighted” average, a move in BA impacts the DJIA 10 times  more than a move in Pfizer (PFE: 35).
BOEING (BA)
Boeing (BA: 354)  Stock jumped again yesterday.   
Hundreds of Boeing’s 373 Max aircraft were grounded  by major airlines after two fatal  crashes last year. I didn’t think a 24% drop from its all-time high of 446 adequately discounted downside risk, so I began to track it.  I noted the company has desperately needed just a little good news from a brokerage research firm or airline that could reverse its downward spiral  chase shorts and bring in some buyers. Yesterday, it may have got what  it needed  when Cowen & Co analyst Cai von Rumohr reported the FAA’s certification flight for the 737 could take place in 4 to six weeks. It will take better  news than that, but BA’s downside risk is now limited  and no longer as great a risk as I feared. Coverage here will end  for now.
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Thursday Aug. 22  “Running Scared…Caution to the Winds… Panic…Lies, Deception, Dysfunction…All With a Price”

Panic breeds  bad decisions. Mounting fear of recession is overpowering the Trump Administration and Fed. They are grabbing for straws to head off a devastating recession and worse, a bear market in 2020.
      I have experienced a lot of crises over 57 years in this business, but this one is scary.
Why ?  Too many lies – Too Much Greed…Too much  bullshit at the highest levels.
The inevitable can only be delayed for so long, until  reality sets in.
All this smacks of a bubble – the cartoon where the man walks off a cliff and doesn’t fall until he looks down.
I shudder to think of the leverage that has been amassed over a 10 year bull market.  So much hot money, so much entrusted to algorithms that cannot be programmed to anticipate what we are seeing in the leadership and lack thereof of our country.
So few see it.  Scary !
When they do, it will be too late
Not bedtime reading, but a wakeup call.
What is most troubling to me is we are not yet in hard times, this get-reelected shell game could be prolonged for months. When hard times come there will be little anyone can do to reverse the economic and social pain.
Tax cuts are a short- term fix. But those taxes were employed to pay certain bills.  Our annual deficit will hit $1 trillion this year which the Wall Street Journal says will bump government debt to 95% of GDP in ten years, up from 79% now, the highest since World War II.
CONCLUSION: As characteristic of all stock market bubbles, they just keep expanding.    They either burst because they can’t expand anymore, or they are pricked by an event.
The key for investors is to do something entirely un-human – that is – walk away while others are popping champagne bottles.   ……………….
Wed. August 21 “It’s All About @020 Hype Leading to a Bursting Bubble”
Tax cuts, linking the capital gains tax to inflation, reduce payroll tax – these are measures  employed when a nation is deep in recession
, not when as President Trump says, the “Economy is great….We’re doing tremendously well….Our consumers are rich.”
It’s all about getting re-elected in 2020, and it can backfire big time.
Interest rates barely got off the floor and QE barely cut back when the Fed panicked to cut its benchmark interest rate last month leaving little more than one or two more rate cuts it can do to pull the economy out of recession.
The Tax Cut Jobs Act was a short-term goose for corporations which spent the money more on stock buy-backs than on capex.
Capital gains tax relief may help investors but do little for the core of the economy. More tax cuts may delay the inevitable – a prolonged recession where the government is powerless to help.
Tax cuts deprive the government of funds to pay its bills without borrowing more and inflating the national debt.
BOTTOM LINE: a massive bubble burst…..Dominos tumbling one after another and a huge crunch in the stock market from a historically extremely overvalued level.
Solution: Don’t panic – don’t expend all your anti-recession ammo too early – nurture  the country through the inevitable, a recession – let the stock market find its own comfort level, stop manipulating it and creating the huge bubble that will devastate investors when it bursts.
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Tuesday  Aug. 20 Administration and Fed Expect Recession
Recession talk is front and center with key officials of the Trump administration (including Trump) denying even a remote possibility of one.
Why then is Trump urging the Fed to cut its benchmark fed funds rate by a full 100 basis points ?
      Why talk about a 10%  tax cut for the middle class which only got a 1%-1.5% tax cut while corporations got a 40% cut in 2017’s Tax Cut Jobs Act ?            Why the talk about a temporary payroll tax cut ?
       For months I have been telling readers we are already in the early stages of a recession, especially housing and manufacturing.
It’s all about 2020’s presidential election, but the prospect of a recession is real, or the administration wouldn’t be panicking.
IF SO, WHAT IS THE STOCK MARKET DOING AT HISTORIC HIGHS in VALUATION ?
There have been bear markets without  recessions, but never a recession without a bear market.
         It is just a matter of time before the BIG money stops buying and institutions begin selling.
Since so many institutions key on the same indicators, the bear market will begin with a 3-day 12% – 16% nosedive.
      That’s why I have been urging readers to  establish a cash reserve in line with their tolerance for risk, at least 30% upwards to 75%.
       The Street doesn’t want the party to end, the administration cannot afford a bear market and recession in an election year. Nine of the last 10 recessions have been with a Republican in the White House and that is a major concern for the BIG money.
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Monday  August 19   “Ignore Administration Hype About Economy”
     I have been warning readers, the administration and Fed will release whatever information it can muster up to stabilize the market and that that  may work temporarily. 
     White House economic adviser Larry Kudlow was on both Fox News and “Meet the Press” Sunday where he said, “I don’t see a recession at all,” and “There’s no recession coming …the pessimists are wrong”
     Chief White House trade adviser Peter Navarro took the same stance on ABC’s “This Week” and  CBS’ “Face the Nation,” saying he was certain we’re going to have a strong economy through and beyond 2020, adding  Chinese tariffs would have no impact on American consumers.
Leaving New Jersey yesterday on Air Farce One, President Trump denied rumors of an economic downturn, saying, “I don’t think we’re having a recession…We’re doing tremendously well… Our consumers are rich.”
     Small wonder then that the market will kick off trading on a strong note today.
We have yet to hear from the Fed, but  give it a few hours after the open.
OK, while  an administration should be supportive, it should  not be manipulative against strong odds that the economy is either in a recession, or on the threshold of one.
By its verbal hype, investors are being sucked into a market that is historically very overvalued. When the truth outs, they will get slaughtered.
      Just the fact the Fed is in a hurry to cut interest rates, indicates it seriously sees a recession looming. Add to that an inconsistent rebound in housing and a crunch in manufacturing and it spells RECESSION, and there has never been a recession without a bear market.
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What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 120 months, the longest  in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.  The unemployment rate is 3.6% which was hit in May.  Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is  reached by the Nat’l Bureau of Economic Research (NBER) and they consider  host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months.  The current bull market at 123 months is 4 times the average of the last 15 bulls going back to 1957
 >Nine out of the last 10 recessions have occurred with a Republican in the White House.
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George Brooks
Investor’s first read.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

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