October 20, 2014

Too late to sell, too early to buy

In his column on The Street, Doug Kass outlines his reasons for why Ebola, Oil prices falling, ISIS in middle east etc.. have created a higher risk for a recession.

Over the last two months I have argued that the U.S. stock market may have moved from a Generation Low to a Cyclical Top.

The reasons for my market concerns run deep as I see multiple peaks. I have argued that investors should be sellers on rallies.

By contrast, the (very much) consensus view is that the five-year Bull Market in the U.S. stock market can only be interrupted by a sharp business downturn or recession.

Those observers seem to be looking at many  traditional (and historically accurate) leading factors that are currently not signaling such a slowdown and downturn, but rather represent to them a disconnect between the global equity markets and likely global economic growth.  

As such, they argue, the recent market decline is just another opportunity to buy. 

The odds of a recession in 2015-16, according to many that look at those indicators, are less than 15%, maybe even lower.

My Contrary View of Impending Economic Weakness

I would argue that it is different this time and the risks of recession have increased.

-    The Yield Curve May Not Invert Prior to a Recession
-    Stock Prices Appear to Be Issuing Economic Warnings
-    The Signal of the Bond Markets Might Be a Precursor to Slowing Growth
-    The Signal of the Oil Markets Is Negative
-    Expanding Geopolitical Risks Raise Risks 
-    Growing Health Concerns Could Dent Economic Growth 
-    The Growing Dominance of the  U.S. Could Have a Negative Twist  

Bottom Line: Based on non-traditional indicators, economic risks are rising.

To this observer, the risks of recession are increasing relative to market expectations.

At the very least the market's tranquility, demonstrated almost consistently in the five-year bull market, is over.

At the worst, a recession looms over the horizon, an economic downturn that almost no one is anticipating as new and more influential and relevant factors are pressuring global economic growth.

Given my continued market and economic concerns, it is probably too late to sell and too early to buy this market.

Originally published on Oct 15, 2014