Deep thoughts

It's always a healthy endeavor to challenge your own views about the market and anything else that you have a belief about. After all, nobody can know with certainty what the future holds for the market and so to have an unwavering view is the wrong approach. It's quite often the case market pundits/gurus take a particular view on the market and dig in their heels no matter what, even when the market had made a complete and utter fool of them. Pride, ego, dogma all get in the way. To change their view and admit being wrong would be an act of weakness according to them. I've said this before, fuck pride and check your ego at the door. The market is not an exact science yet I've seen people act as if they cracked the code. Sometimes you will find a guru get a hot hand and for a period of times he/she looks like a genius only for them to go from genius to goat. This is why you should never take anyone's view's as gospel, no matter how right they have been in the past and why you have to own your own view. I do my best to synthesize my views by gathering objective info that has had predictive power, reading commentaries from people who have a good track record and by using experience/intuition. I've done this long enough to know that there are times when adjustments need to be made to my outlook or an outright 180 degree pivot i.e. an admission of being wrong.

I've been stating here for a while that I believe a bullish resolution will ultimately result here mainly due to evidence that indicates that investors in general have been primarily bearish/skeptical in the face of a prolonged market rally - this has been the primary thesis of my general bullishness during the entire bull market since 2009. The few times when complacency started creeping in, the market would eventually have a notable correction turning complacency back to fear/skepticism thus allowing the bull market to resume. But what if we are at a point where the economic fundamentals take such a turn for the worse that it would override the bullish implications of bearish sentiment? This is what happened in 2008. Bearish sentiment didn't matter because the fundamentals were so bad, mind you, 2008 was a 1 in 100 year type storm.  In a bear market when economic fundamentals are deteriorating, bearish sentiment is only natural and therefore loses contrarian implications until it reaches great extremes. The same can be said about bullish sentiment in a bull market.

Right now the economic fundamentals in the US are still generally good. There has been a lot of hysteria about the yield curve predicting an immanent recession but there has been no material signs of weakness in the hard data that would suggest one. Earnings are still growing and initial claims for unemployment insurance are trending flat/down for the past 12 months. If you look at previous recessions you will notice that claims had been creeping higher for the preceding 12 months or so.  So, as scary as the markets and headlines can be, it's critical to be as objective as possible. Can the yield curve be suggesting that we will soon see notable deterioration in the economy? It sure can, but  more supporting evidence needs to be seen and as I stated in prior posts, the fact that everyone is making such a big deal about the yield curve suggests to me that it won't be as effective in the recession call this time, much like how I remember in 2001 everyone jumping for joy when the Fed cut rates by 50 bps  because history showed that the market would be higher in 12 months.  But I would be lying if I said that I have no concerns about the yield curve. I do. It has to be respected but I would have to think that the thirst for positive yield around the globe must be distorting the message of the bond market to some notable degree however.

What really bothers me in the antics of Trump. When he bragged about the stock market making new record highs, that was quite cringe worthy.  I actually agree with his stance on China and his criticism of the Fed but the  manner in which he expresses his opinions are quite classless to say the least.  He seems to be going off the rails with his constant bashing of people and media on twitter which makes me think that one day he could somehow cause a black swan (orange swan?)  type of event.This is something that lots of people feared from the 1st day he took office. However, let's always remember this...despite Trump's hard line stance on China and the Fed you would have to assume he doesn't want to sabotage himself with elections taking place next year. I get the sense that all of these brutal twitter tactics could be just a front/posturing. He will end up softening his stance and get a trade deal done sooner rather than later I would suspect. Trump watches the stock market and uses it as leverage. He tends to announce higher tariffs when the stock market is near a high and then tries to sooth the market after it has come down. Ultimately, he wants a higher stock market and strong economy come election time next year. Trump could very will turn out to be an evil genius or utter buffoon which I'm sure lots of people already think the latter applies.

September has the potential to be turning point in the market with the FOMC meeting mid month and scheduled US China trade talks. Let's keep an eye on expectations for these. If people are too hopeful, we would probably see another downleg to this correction if there's anything short of a decisive rate cut and dovish stance by the Fed and/or meaningful progress on trade talks.