A lot of investors and pundits are starting to freak out. Meanwhile, I hope most of you, like me, have been cautious, actively raising cash and adding hedges already to prepare for this downturn. I got a bit bearish earlier this year and have been quite cautious ever since. The title of this article that I published on WSJ/Marketwatch back in June underscores my change in stance this year, from bull to bear (and is one of many from this year in which I preached caution):
As a matter of fact, I’ve actually raised even more cash and added more hedges since that June post, as you TradingWithCody subscribers know well. Much of what I’ve been worried about, especially The Great Trade War of the 21st Century has played out because friendly fire, fog of war and unintended consequences are piling up. As I outlined in the above June article (that I called :
“For the last eight years as I’ve been so bullish and investing in so many Revolutionary companies, my analysis has continually pointed to a Steady Betty Economy and a Bubble-Blowing Bull Market. The earnings and employment and inflation and policy trends have been steadily strong and improving for those eight years…
But friendly fire, fog of war and unintended consequences are what I’ve been talking about since the very first moment that Trump started talking about tariffs and trade wars. You can’t be the leader of the so-called free world and start talking about tariffs and start talking about trade wars without starting a trade war. The minute he talked about it, that is the first shot of the war. Since that time, that’s all I’ve talked about when I talked about the trade wars. Friendly fire, fog of war, unintended consequences. Absolutely these are real problems, real and developing problems, yet another reason I want to be just a little more cautious right now, because that is a new economic problem, a new profit problem that has not coalesced yet, but is certainly recognizable as a possibility and looking increasingly likely.
If Tim Cook thinks he can tell his shareholders like me that he knows that Apple is not going to be affected by this tariff and trade war stuff, he’s nuts, man. Six months from now, Apple could very well be suffering in a multitude of ways…
The Great Global Trade War of the 21st Century has already started impacting that Steady Betty Economy. I’m not sure we’re about to crash or even if the Bubble-Blowing Bull Market is truly over. But as I keep telling you guys since the markets hit their new highs earlier this year, I want to be more cautious, have more cash and more hedges right now than at I have had at any point in the last ten years.”
Cody back in real-time December 9, 2018. Here’s article I wrote back in September right as every major stock market was putting in its all-time highs and just about to tank in October, November and into December:
In that article I outlined the near-term, mid-term and longer-term set up for the markets and the economy and I want to update each of these bullet points tonight and see what, if anything, has changed. Here’s my current take on the near-term, mid-term and longer-term set up for the markets and the economy. I’ve struck through the old version from September 5 and added my other changes in bold.
Near-term (say, over the next 3-6 months), the market set-up is all about
headlines impact on earnings and guidance from The Great Trade War of the 21 Century and the wild swings/pain being caused in the currency markets and in many developing economies. We’re another six weeks out from the next earnings season, which will likely be another very strong one for most public companies have a lot of talk about how The Great Trade of the 21st Century is hurting business but will also have a lot of companies saying business is good, but which most analysts have long expected. And near-term, I’m bearish still quite cautious if not as outright bearish as I was back in September, as I think the sentiment is way too euphoric and greedy and bullish right now more on the worried than the greedy side right now. So I’m expecting maybe a 5-7% pullback a bounce this week but probably more volatility and/or weakness after that.
Mid-term (say, over the next year or so), corporate earnings
are likely to continue to grow strongly as corporations legally avoid paying almost all taxes and continue to receive trillions in direct subsidies and trillions in indirect corporate welfare are going to be hit by ramifications of The Great Trade War of the 21st Century and a long-in-the-tooth boom. But, there’s certainly a risk no doubt that all The Great Trade War of the 21 Century is already causing the unintended consequence that the US, China and every other nation’s global corporations are making adjustments to their supply chains and future plans. And we’re talking about trillions of dollars of economic activity in these supply chains and future plans which will have other unintended consequences. So maybe that’s where the biggest threat to the longer-term lies too.
Longer-term (say, over the next 3-5 years), the broader economy will likely see some significant disruptions to the status quo as those aforementioned unintended consequences ripple through the global system. Will they be positive for corporate earnings and/or the US worker? I think there’s a lot of risk that they won’t be. I am
certainly less comfortable predicting that any future laws passed by the Republican Democrat Regime on a Federal level will be done at the behest of a giant corporation/industry that donated many millions to make that happen so there will be more firepower thrown at corporate earnings from a policy standpoint in future years because of the potential for hostility amongst developed powers to break out. Then again, as we saw in 2001 and in 2008 when the markets crashed and the economy went recessionary, the Republican Democrat Regime policies continue to point towards more bubbles and crashes. So are we in a bubble and about to crash?
To wrap up for tonight then…
For most stay-at-home traders and I’d suggest staying cautious with a good cash balance and a bit of short stock and/or put hedges and maybe some gold and GLD.
As the hedge fund manager that I’ll soon be, I see a lot of opportunities to build up both longs and shorts in this market. There are a lot of companies that will be hit harder than others by these recently-turned tumultuous economic times. Meanwhile, there are some incredibly Revolutionary companies whose stocks are getting to be quite attractively priced and other newer Revolutionary companies that will be coming public or are available to as crowdfunding/private equity opportunities too (and I’ll be doing some crowdfunding/private in the hedge fund too by the way). I actually think that some of the cryptocurrencies that are down the 90%+ that I’d expected they would be are getting more attractive (and I’ll be doing some cryptocurrencies in the hedge fund too by the way).
There’s so much to do, so much to research, so much upside to capture. Let’s keep rocking. Have a great Sunday night.