2018 May Mark the Beginning of an “End” – Prepare While There’s Still Time
Last week we reported on a potential EU market crash tied to Brexit, and how that could affect the U.S.
As with all “good” things, the bull market that’s been chugging along since the 2008/2009 recession looks to be coming to an end.
And signs in 2018 seem to be signaling the beginning of that end.
According to a feature in Barron’s, 2020 could be the year the economy goes off a cliff:
The current bull market has been extraordinarily long at 3,400 days (see chart), and is the second longest on record since the 1987-2000 bull market.
That bull market started with Black Monday in 1987, gained 582% overall, and ended with the historic “dotcom” crash in 2000.
During that “dotcom” correction the NASDAQ lost 78% very quickly, with many ripple effects afterwards including new standards for how digital startups would be handled.
Then, after the short period of growth starting in 2001, the market quickly crashed severely again in 2008, caused by irresponsible lending practices and the resulting massive housing credit crunch.
And now, after all that, the U.S. economy is getting ready to “go off the cliff” again…
The “Goldilocks Economy” Goes from Party to Hangover
Growth in the S&P 500 since 2008 has been of the “Goldilocks” type, increasing by at least 1.5% a year since the crash, but never more than 2.9% in any single year.
This lackluster growth is following a similar pattern to the growth between 1987 – 2000, and has resulted in a modest 302% gain since March of 2009. Market optimists over-rely on this trend, thinking the “party” is going to keep going.
Well, it appears the party is ending and the hangover is just beginning…
First, the “weight” of the defensive sectors in the S&P 500 dropped to an all-time low of 15% according to Leuthold Group’s Chief Investment Strategist Jim Paulson, who issued a stern warning:
Next is the tax stimulus. Much like a shot of adrenaline, the effects of any tax stimulus are not meant to be a long-term solution for the markets.
In fact, like the Bush-era cuts, there is “a big hole left to deal with” as identified by Morgan Stanley chief U.S. economist Ellen Zentner.
This hole has to be addressed before the effects of the tax cuts wear off. And just as that stimulus wears off, the Fed’s monetary policy could be strangling the market.
And the rates already priced in have no precedent, according to Alan Ruskin of Deutsche Bank as quoted in Barron’s, and also noting the reckoning right around the corner (emphasis ours):
And stocks leading up to the “reckoning” look to be increasingly more volatile.
With the headaches caused by increased volatility in unprecedented market conditions, is there any aspirin?
What this “End” Signals for Gold
Even though there is significant risk of a serious recession, gold will likely produce the expected response to tough market conditions.
In fact, prospects look good for $1,400 per ounce according to Simona Gambarini from Capital Economics:
But no matter when gold surpasses these benchmarks, two things are certain:
Plus, other countries are already reducing their exposure to U.S. Debt, and threat of a longer-term trade war on multiple fronts is looming near.
So take this rare opportunity to prepare your portfolio in advance for weak policy response, because the “end” is nigh.
Send this article to a friend: