The trade war has taken a toll on the U.S. and China, but nobody’s talking about the toll it’s taken on investors – especially those who have made bearish bets against the stock market. Valuations remain frothy despite economic headwinds, frustrating the doomsday calls of recession timers and market skeptics generally.
Central banks’ liquidity injections and interest-rate suppression, along with corporate share buybacks, are supporting the market despite a raft of economic red flags:
- The World Trade Organization downgraded its global trade growth expectations for 2019 to an anemic 1.2%.
- Global trade has deteriorated considerably, with particular damage done to international air freight, electronic components, and raw materials.
- JPMorgan admits (even while mocking market bears) that the U.S. is now in an earnings recession.
- 67% of respondents to the Duke Global Business Outlook CFO survey believe that the U.S. will be in recession by the end of 2020, and 84% believe that a recession will have begun by the first quarter of 2021.
- The markets have priced in not only the “not QE” fourth round of QE, but also an inevitable fifth round of QE; the stock market has become overly efficient, to the point where it has already baked all Fed accommodation into the pie.
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No matter how you slice it, there’s no denying the impact of the trade war on global commerce:
The trade war must and will end, as neither side wants to see more damage to their respective countries’ economy. We’ve all seen how the mere hint of a “Phase 1” trade agreement pushed the stock market to fresh all-time highs; a full-on trade pact will, of course, send stocks to the moon – in the short term, at least.
Market super-bears also have to contend with President Trump’s relentless drive to push interest rates lower. On the 18th of this month, Trump tweeted that he discussed easing and negative interest rates with Federal Reserve Chairman Jerome Powell.
Don’t expect negative interest rates, as Powell has signaled that he’s done enough interest rate slashing to keep the economy and the stock market on track, for the time being. On the other hand, there’s little doubt that Trump will continue to put pressure on the Fed to drive interest rates to near-zero levels.
All of this makes it challenging to be a bear in these bubbly, euphoria-driven times. It’s gotten to the point where the corporate fat cats at JPMorgan are literally shaming market skeptics including Jeff Gundlach, Noriel Roubini, Marc Faber, and David Stockman as “Armageddonists.”
That’s a blow to the gut, but the bankers have the upper hand for now and they’ll continue to push the needle until the system implodes. Until that happens – and we’ll be alerting you when it’s time to get out – don’t even think about fighting the Fed, or the President, or the banking cartel, or the bubble to end all bubbles.
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