Economic Outlook

Charting the World’s Major Stock Markets on the Same Scale (1990-2019)

Most investors around the world are familiar with the S&P 500 index.

Not only is it the most widely accepted barometer of U.S. stock market performance, but it’s also been on a 10-year bull run, now sitting at all-time highs near 3,170.

This week, we chart those historical returns, and then use the U.S. benchmark as a backdrop to compare other major stock markets around the world, such as those in Europe, Asia, and Canada….CLICK for complete article

China, Trump Confirm Phase 1 Trade Deal, Avoiding $160B In New Tariffs

Chinese officials said Friday that the a Phase One agreement has been reached with the U.S. on trade that includes a phased rollback of tariffs.

The Dow Jones Industrial Average jumped more than 100 points as Chinese officials began a press conference late Friday Chinese time to announce the agreement.

Chinese Commerce Vice Minister Wang Shouwen announced the deal. Chinese officials said it requires technical legal review before it is signed, but that the two sides had agreed on a deal that will lead to mutual reduction in tariffs on a “step-by-step” basis and improve Sino-American relations overall. CLICK for complete article

Trade Deal Not Likely Before Christmas 2020

So much for that trade war deal for Christmas. It’s not happening, and the DOW has shed nearly 400 points since this morning on that holiday sentiment alone.  By 12:28pm EST, the DOW had shed over 440 points.

Earlier today in London, Trump dropped a trade war bombshell, saying that a deal isn’t like until 2020, and worse–not until after presidential elections, adding that “In some ways I think it’s better to wait for after the election if you want to know the truth”.

That likely means that Trump has been less than forthcoming about the success of negotiations about a trade deal, and publicly aiming for a deal after elections would suggest that it wasn’t a failure, officially, so might resonate less at the polls.

And “after the elections” is a vague notion, and Trump concedes that he has “no deadline”.

The DOW just took a plunge because the markets had already priced in a trade deal after a verbal agreement between China and the U.S. over a month ago.

And it’s not just the China element that’s dragging down the markets…CLICK for complete article

Ray Dalio Denies He Is Betting On A Market Crash

Update: After sparking much apocalyptic speculation following the previously reported WSJ article according to which Bridgewater has a $1.5 billion short position on the S&P which implies a sharp market drop before March 2020, the fund’s founder, Co-Chairman and Co-CIO has come out refuting the WSJ article.

In a LinkedIn post published shortly before noon, Dalio published a brief LinkedIn comment in which he claims that the WSJ article’s conclusion that Bridgewater is betting on a market drop is “wrong”, and wants to “make clear that we don’t have any such net bet that the stock market will fall.” He then pulls a page out of every Wall Street prop desk, and certainly that of the JPMorgan whale, in which he says that “we don’t have any such net bet that the stock market will fall. We explained to Juliet Chung, the author of the article, that to convey us having a bearish view of the stock market would be misleading, but it was done anyway.

What Dalio is in effect saying is that the short position is merely a hedge to its existing portfolio, which of course, is the same “explanation” that Wall Street prop desks used over and over for the past few years when they were banned from taking pure directional trades, and as a result, were forced to justify any positions as “hedges” to other positions, with the London Whale’s IG9 fiasco coming to mind most notably…CLICK for complete article

Which Secular Bull Market Is It – 1950’s or 1920’s?

“Despite concerns in the third quarter, bears never had a strong argument for why stocks were overvalued and the major indexes simply traded sideways for much of the last six months, wrote Robert Sluymer, technical strategist at Fundstrat Global Advisors.

We ‘continue to view the market cycle as being a normal pause in an ongoing secular bull market similar to what developed in 2016, 2011 and the ‘cycle’ pullbacks that developed during the secular bull markets in the 50s-60s and 80s-90s.”

It is an interesting point. The current bull market certainly seems unstoppable, but the question that must be answered, fundamentally, is if this is indeed a “secular bull market,” and if so, “where are we” within that cycle.

What is a “secular market?”

“A secular market trend is a long-term trend which lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.”

In a “secular bull’ market, the prevailing trend is “bullish” or upward-moving. In a “secular bear” the market tends to trend sideways with severe drawdowns and sharp rallies…CLICK for complete article

15-Extreme Risks & How You Can Navigate Them

Willis Towers Watson’s Thinking Ahead Institute (TAI) recently revealed what it considers the 15-extreme risks facing investors for 2019, as well as for the years ahead. The risks run the gamut from climate change to nuclear contamination.

TAI’s research suggests, broadly, there are three hedging strategies available to institutions:

  • Hold cash. Over long historical periods cash has held its real value through both episodes of deflation and inflation but there is no guarantee that this will be the case in the future.
  • Derivatives. It is worth mentioning that cost and usefulness are often in opposition. The cost of derivatives protection can often be reduced by specifying more precise conditions – but the more precise the conditions, the greater the chance that they are not exactly met and hence the ‘insurance’ does not pay out.
  • Hold a negatively-correlated asset. There is no single asset that will work against all possible bad outcomes. Further, there is no guarantee that the expected performance of the hedge asset will actually transpire in the future event.

While we have regularly discussed the“value of holding cash,” and “hedging” within portfolios, for most investors there are only a limited number of options available. The problem becomes magnified by the lack of capital, and a disciplined investment strategy,  to delve into and manage more complex risk mitigation strategies. Therefore, investors are simply told to “buy and hold,” and hope for the best.

Since institutions are actively hedging capital risk, it should be clear “buy and hold” strategies do not. However, there are actions you can take to navigate not only short-term market risk, but also long-term fundamental, economic, and environmental risks…CLICK for complete article