Pretty much every “buy” recommendation in this newsletter has come with a version of this caveat:
We’re in the late stages of a long credit expansion, which means a potentially brutal recession and/or bear market is likely imminent. So approach these stocks with caution. Don’t jump in all at once. Instead, add to positions in high-quality names via lowball bids, dollar cost averaging, and/or put writing.
The last couple of days illustrate this point. From CNBC this morning:
The stock market took another pounding Friday after China retaliated with new tariffs on U.S. goods, sparking fears President Donald Trump has ignited a global trade war that will lead to a recession.
The Dow Jones Industrial Average traded more than 1,500 points lower, or 4%. This follows a 1,679.39 point decline on Thursday. The S&P 500 slid 5% after the benchmark shed 4.84% on Thursday and is now off more than 15% off its recent high.
The Nasdaq Composite, home to many tech companies that sell to China and manufacture there as well, dropped 4%. If it closes there, the measure will be 21% lower than its December record close, a bear market in Wall Street terms.
China’s commerce ministry said Friday the country will impose a 34% levy on all U.S. products. This matches the tariff on Chinese goods coming into the U.S. unveiled by President Donald Trump on Wednesday.
Technology stocks kept bleeding on Friday. Shares of iPhone maker Apple slumped more than 4%, adding to a 10% loss for the week. Artificial intelligence bellwether Nvidia pulled back 7%, while Tesla fell 9%. All three companies have large exposure to China and are among the hardest hit from Beijing’s retaliatory duties.
Outside of tech, Boeing and Caterpillar — big exporters to China — led the Dow lower.
The 10-year Treasury yield fell back below 4% Friday as investors flooded into bonds for safety, pushing prices up and rates lower. JPMorgan late Thursday raised the odds of a recession this year to 60% from 40%.
“The fear now as we go into the weekend [is] the trade war escalates, and the US doesn’t back down,” said Jay Woods, chief global strategist at Freedom Capital Markets. “If we are to punch back, you could have damaging effects to not only the tech sector, but the economy overall. This could throw us into a recession and could end the bull market as we know it.”
We’re in a Recession
Equity bear markets normally either cause or coincide with recessions. And even without the sudden trade war, the US economy was poised to roll over. See:
Forecasters are starting to buy into the “imminent recession” thesis. Here’s the Atlanta Fed’s GDPNow real-time growth tracker, which has Q1 at -3%:
Commodities Aren’t Immune
Tech is leading the way down because it was, by far, the most overvalued sector. But gold, silver, copper, and oil are all being smacked by the sudden recessionary scare. With gold, for instance, the question is now whether $3,000/oz is support or resistance. Looks like we’ll know shortly.
So How Do We Play This?
Sharp drops like this are why you never pay full price for a stock. Always place orders at lower (sometimes much lower) levels to exploit Mr. Market’s bipolar nature. So our approach shouldn’t change: Keep adding to high-quality names from our Portfolio with (sometimes very) low bids.
And assume that the world’s central banks will respond to this year’s bear market/recession with aggressively easy money that further debases the big fiat currencies, sending capital pouring into real things that governments can’t create out of thin air.
In other words, treat the current turmoil as the setup for the next leg of the commodities bull market, culminating in the inevitable monetary reset. It’s all going according to plan.
1) Much of the media huffing and puffing about Trump's tariffs is political and/or self-serving from those who monetized the status quo ante;
2) I'm old enough to remember Reagan, immediately following the 1970's inflation / gas lines / Carter malaise era. The immediate impact of the transition to his policies was a severe recession. Followed by "morning in America."
It is plausible that we'll experience something similar now. That is, if the federal judges and their extra-Constitutional power grab can be reigned in, bringing our country back to Constitutional boundaries and its separation of powers.
The sky is falling, wolf, wolf, wolf, say the sugar high junkies that never gave a thought to blue collar jobs sent overseas. Greed bites you back hard!
1) Much of the media huffing and puffing about Trump's tariffs is political and/or self-serving from those who monetized the status quo ante;
2) I'm old enough to remember Reagan, immediately following the 1970's inflation / gas lines / Carter malaise era. The immediate impact of the transition to his policies was a severe recession. Followed by "morning in America."
It is plausible that we'll experience something similar now. That is, if the federal judges and their extra-Constitutional power grab can be reigned in, bringing our country back to Constitutional boundaries and its separation of powers.
The sky is falling, wolf, wolf, wolf, say the sugar high junkies that never gave a thought to blue collar jobs sent overseas. Greed bites you back hard!