Skate to where the puck is going to be not where it is now

A famous quote by the great one Wayne Gretzky. This is the kind of thinking you need you apply to the market. Last year at this time there was all this talk about "global synchronized growth". Remember that? What happened if you embraced that and skated to where the puck was? Now this catch phase has been flipped on its head and what we hear now all the time is "global synchronized slowdown".

I read an interesting article about the recent annual World Economic Forum in Davos which brings together a collection business leaders, economists, journalists, ect to discuss major issues and topics that are shaping the global  economic landscape. It's a great way to take the pulse of investment sentiment/expectations and as such, use as a contrary indicator.  The author suggested correctly last year that there was a sense of euphoria which was probably a warning that a cooling off phase was due. In 2016 the author claimed the mood was one of worry as there was a belief the global economy was on the brink of a global recession due to the collapse in oil. This year according to the same author, the mood is downbeat again as worries about economic growth are to use his words, "palpable".  What this tells me is that the wall of worry is back and expectations are sufficiently low for the bull market to resume. What about the bear case? For the bear case to play out, you are going to need to see things unravel very quickly much like what happened in the fall of 2008 - not the same level of economic damage as 2008, but rather one thing after another going bad causing growth the plunge even more sharply. Can this happen? Sure can but that's not a bet I'm willing to make at this time.

You can be assured that the sentiment reflected via Davos is one that the authority figures of the world i.e. policy makers and Fed heads are well aware of and probably share. They have learned from 2008 for better or worse, that doing nothing and just letting the markets "sort things out for themselves" like what happened with Lehman, is not the way and so expect policy responses. I wrote late last year that the more the market goes down in the short term the better it may be in long run as it will send a strong signal to authority figures that something is wrong. It took Powell a slap to the face, a left hook to the jaw and a rear naked choke hold  by Mr. Market for him to eventually get the message and shift his policy stance. You can expect similar responses from other authority figures. China has announced stimulus measures and I expect to see European policy makers act very soon too as Germany looks to be in technical recession right now. The hard core permabears will moan and complain about this being yet another kick of the can wringing their firsts saying "just you wait and see how badly this will end!" but that can has been kicked for decades. You will make no money being dogmatic self righteous.. Ya, maybe one day it will end really badly but when? Probably not until we get to the point of maximum complacency where it becomes common belief that authority figures have found a way to repeal the business cycle. 

A key difference between this slowdown vs 2016 and 2011 is that monetary policy is a lot tighter, relativity speaking and we're obviously closer to the end of the cycle. This makes the risk of the slowdown turning into outright recession higher vs those 2 previous times, but with sentiment sufficiently soured and authority figures now well aware of growth stalling/contracting and taking action, it would appear that the bulls have plenty of "outs" here.

Short term I could see the markets consolidating for a bit but I'll admit this is more guesswork than anything else. If the market works off the overbought condition without too much damage and sentiment stays at least neutral, we should see another leg up....wait and see/