Probably the world’s most famous hedge fund manager, Ray Dalio, who runs the largest hedge fund in the world, has just made an interesting comment about equities. Dalio, who runs Bridgewater, says that he does not see a big bust coming in equities, just a “great sag”. Speaking about corporate debt levels and the risk of a blow up in fixed income, Dalio says “Those extremities we are reaching are not such that it is likely to have a debt crisis. But you have reached the limits of that so it creates a big sag versus a big bust”.
FINSUM: We think this is a pretty nuanced view. A big meltdown similar to 2008 does not seem likely, but a long-term growth overhang from too much debt does seem a distinct possibility.
Quick quiz: what is the pillar of this bull market? Unless you answered “the US consumer”, you probably are not getting a passing grade. Therefore, any dents to the teflon-coated US consumer are very worrying, and that looks like the road we are headed down. New consumer spending data is in and it is poor. Spending at gas stations, on cars, and on home materials was considerably weaker. The overall boom in spending now appears to be over as we head into the winter, which could prove to be more than just meteorological.
FINSUM: There is good news and bad news. On the downside, this means that consumers may no longer be able to shoulder the load of carrying the economy. On the positive side, this could lead to rate cuts by the Fed, which the market would love, at least in the short-term.
Whether we like it or not, a recession is likely headed our way. Industrial numbers are waning, and even consumer data is getting weaker. So assuming we have a recession, where is the best place to hide? A couple suggestions today. How about materials stocks, whicg have been on a tear this year, up 50% or more. Check out Vulcan Materials and Martin Marietta Materials, which specialize in gravel, sand, and crushed stone. Materials stocks, like garbage-disposal companies, are quite recession resistant.
FINSUM: These stocks are pricey right now, but the demand for them seems likely to stay high if the economy keeps trending downward.
Is the bull market winding down? Most people seem to think that is inevitable after such a long run. However, there are some contending the bull market could go on for years. The argument comes from Ciovacco Capital Management, which contends that by analyzing historical charts, the stock market looks poised for another breakout out, especially considering the Brexit deal, the US-China “phase one deal”, and the generally buoyant mood on Wall Street. Ciovacco says worries about China have been the biggest drag on performance, but that a lot of progress has been made, and one more piece of good news, such as the delay of December tariffs, could spark a big run by igniting “animal spirits”.
FINSUM: This is obviously highly speculative. However, it is a decent 30,000 foot view of where the market stands right now.
Well we are about three and a half years post-Brexit, and for most of that time, the situation only seemed to be getting worse. The UK was not only squabbling with the EU, but in the in-fighting in the UK was fevered. However, this week Boris Johnson has almost inexplicably agreed in principle to a deal with the EU. The big step from here is getting it approved by Parliaments on both sides.
FINSUM: All the details of this plan are not apparent yet, but that is frankly beside the point for a US investor. What matters here is that if the UK and EU can agree a deal, then markets will stop fretting about risk on that front.