Wednesday, January 9, 2019

January 2019 Monthly Market Commentary

Marc Faber has posted his January 2019 Monthly Market commentary. See below for the summary via GloomBoomDoom.

At the beginning of this report I am presenting two views of China: one is by China basher Patrick J. Buchanan and the other by my friend Jay Chen who provides us with pictures that contradict most of Buchanan's views.

Concerning asset markets (including stocks, corporate bonds and real estate) the BIG QUESTION that is on every investor’s mind is whether the headwinds for asset prices we saw in the last three months of 2018 will only be of short term duration (brief correction in an ongoing bull market for asset prices) or of a more serious nature, which would imply that what we saw recently was only the first phase of a prolonged asset price downturn that would also be accompanied by a global recession.

I am quoting the views of three friends of mine who share similar views.

Mark Whitmore, CEO of Whitmore Capital Management recently concluded his letter to investors by saying that, "I think the tumult we have seen in financial markets in the 4Q 2018 is but a preview of things to come. Yes, there will be violent countertrend rallies in which the market will attempt to lure investors back in. We saw that as the previous bubbles burst over the last couple of decades. But value-conscious investors who stood on the sidelines patiently waiting for markets to be rid of speculative excesses avoided being duped by these bear-market traps….. of far greater import, I remain convinced that it is all but inevitable that markets will be going much lower in the future."

Alan Newman who is the editor of Cross Currents noted on December 26 that, “Our Nasdaq Climax indicator is ….. shocking. Nasdaq has flipped from bull market to bear market (stocks were down close to 11% last week), yet we still do not see even the slightest sign of panic. Days in which Up/Down volume reach a ratio of 1:9 (or worse) have typically been thought to be solid evidence of capitulation. To date, there has not been any such instance since May 17, 2017."

Finally, Michael Lewitt who publishes the excellent The Credit Strategist comments about credit conditions and specifically about the recent sell-off in the leveraged loan market. Under The Unthinking Consensus he bemoans the fact that publications like Barron's and the Wall Street Journal offer less insight than the week before, something it shares with the rest of the mainstream financial media, "which is one reason why investors were so ill-prepared for the bear market unfolding before their eyes."

I wish my readers a Happy New Year. Remember that just because we had for close to 40 years "asset inflation" it is unlikely that things will stay the way they were. [Bertolt Brecht: "Because things are the way they are, things will not stay the way they are.”]

Friday, January 4, 2019

I wouldnt be surprised if S&P500 dropped to 1500 or so

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Monday, December 17, 2018

Monday, December 3, 2018

The coming asset price deflation will affect the global economy negatively

Marc Faber's latest Monthly Report December 2018 is out. See excerpt below from Gloomboomdoom

Last month I concluded my report by stating: “I should warn my readers that the Wind of Change may bring about the end of the Great Asset Inflation, 1981 – 2016/2018, which propelled all assets higher including bonds, stocks, commodities, precious metals, properties, art, collectibles, etc. We may enter a period where asset prices stagnate or decline. This would imply a change from asset inflation to asset deflation.”

I must warn my readers that major changes in asset markets are never obvious because they involve enormous turbulences and divergences at the time of their occurrences, which obscure the change in the long term trend and mislead the majority of investors. Moreover, major trend changes are rather rare occurrences.

In the 1970s, the best performing assets had been oil, gold, US coins, silver, stamps, Chinese ceramics, diamonds, etc. with compound annual rates of return respectively of 34.7%, 31.6%, 27.7%, 23.7%, 21.8%, 21.6%, and 15.3%. In the 1970s, the two worst performing assets were bonds and stocks with respective compound annual rates of return of just 6.6% and 6.1%.

This all changed after 1981/1982 when equities and bonds became the best performers. But even among stocks the Change of Wind was confusing. In the 1970s, the best performing stocks had been mining companies and energy related companies, as precious metals and oil prices soared. But after the oil and precious metals collapse in 1980, these stocks performed miserably while cyclical (including autos), food and brokerage stocks performed superbly.

As my readers will most likely have noticed, in 2018 asset prices around the world performed poorly. According to Deutsche Bank Data going back to 1901, a record share of asset classes have posted negative total returns in 2018 (In 2017, just 1% of asset classes delivered negative returns).

Now, the big question is this: In the past, the Fed and other central banks have always supported asset price declines with additional liquidity injections (QEs), which drove asset markets to new highs. But will it work this time?

I am leaning towards the view that this time it will not work and that the coming asset deflation will have a devastating impact on the global economy and on most asset prices.

Monday, November 19, 2018

The Stock Market May Have Peaked

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