Just something I find rather interesting right now. If you look back at the history of global markets since the GFC, we’ve had a spattering of issues around the world that have caused a lot of worry in the markets. Here are some examples of what we faced and moved past.
- Eurozone crisis of 2011
- Commodity crash of 2012-2015 (namely oil in 2014)
- Chinese hard landing in 2015-2016 and potential currency problems
- Potential Brexit crisis
- Broad emerging market recession
So lets take a review of the current issues that global markets are worried about…
- Eurozone crisis (ECB banking problems, Italy debt problems, France protests, populism, etc). This is renewed and potentially even more worrisome than it was in 2011 since the countries at risk are larger.
- Commodities have started to crash again, starting mid 2018 until now, where Oil is once again crashing. Not predicting whether this or won’t will crash further, but I do find this pretty interesting overall.
- Chinese hard landing issues are on everyone’s mind once again with their currency coming under pressure to stay below the USDCNY level of 7. Similar to 2015, their markets are also under intense pressure and they have a ton of structural problems with far more debt than they had in 2017-2018. Oh, and also lots of political pressure via trade war issues.
- Brexit is back on people’s minds as part of Eurozone problems, and a lot of people are realizing we never really resolved this from back in 2016 as talks break down.
- Emerging markets saw a wave of monetary problems in mid 2018 and were the first to go bearish overall.
I have my own views on where things are going, but that’s not the point of this thread really. I just find it very interesting that we’re basically being haunted by the ghosts of our past. It lends credence to those who mentioned that we simply papered over our problems from the past with central bank policies. With that said, it also shows that we can paper over our problems in the past for a time, and there isn’t necessarily a reason to believe we won’t continue to do that in the future.
Domestically, economy hasn’t rolled over yet, but econ data tends to lag and trickle down. With tons of companies revising earnings downward the past quarter and a lot of other fears, the markets are pricing in a drop in top-line growth, which is yet to show up in earnings but will likely start to materialize. This will come amidst a backdrop of higher wage inflation costs, higher rates, and a stronger dollar (negative). We are in a classic late-cycle setup in almost every sense right now.
I think a lot of the permabulls’ problem right now is that they are only looking at the economy from the perspective of just looking at the USA. This sounds fine and dandy, but the economy is far too global to ignore the big issues going on outside our borders. And those issues outside our own borders will come back to affect us as has already started.
For whatever it’s worth, Europe is on the brink of recessionary economic data right now. Despite how shitty things are in Europe right now (big surprise we see rioting?), there is practically zero news coverage of this. On top of that, China has seen a huge slowdown and is seeing major struggles monetarily and with their massive credit market. And on top of all that, the divide between the USA and the rest of the world is contributing to causing the dollar to rise and dollar liquidity to dry up dramatically (which is a major issue).
My big call throughout 2018 was that we may very well be seeing the formation of the first major recession in the USA that didn’t start from within our borders. Typically, things go south domestically and then spread to the rest of the world. Now, I think it may be more of the opposite as we shift from an environment with nothing but tailwinds into an environment with nothing but headwinds.
With that said, despite my very negative outlook, it’s important to learn from where other permabears or generally bearish people have failed over the past 10 years. Don’t discount central bank intervention… So I’m watching for a massive wave of easing. I think over the long run, easing to the extent that we’ve seen throughout the world is a really big problem, and another wave of easing here would basically be admitting to the fact that global markets are addicted to stimulus and can’t survive with out (which is essentially a ponzi). But I’m not here to fight what should be, just here to make money off what is.
Also, just want to note that this won’t happen overnight. I have a lot more thoughts, but don’t really want to write an essay here, and don’t want to get into debates with others I don’t have time to argue about. Note that I’m not even bringing up trade wars because they’re not the biggest issue, they’re simply another catalyst that’s increasing tension.