Viking Posted January 3, 2019 Share Posted January 3, 2019 Sorry for the updates to this post; my thumb posted it before i was done with my thoughts :-) Since February of 2018 the financial markets have been steadily weakening. However, i have been focussed on the strength of the US economy. All of the leading indicators were not even on recession watch. So i remained 100% invested, heavily skewed to US banks. I was also focussed on 10 year US treasuries, which peaked out at 3.3%, which supported the idea that the US economy was doing well. The economic data coming out of the US recently looks to be to be now flashing yellow (no recession imminent but things are trending in the wrong direction). - ISM Manufacturing Index Decreases Sharply to 54 in December: https://www.calculatedriskblog.com/2019/01/ism-manufacturing-index-decreased.html The 10 year US bond is now trading at 2.57%, which is not healthy. The bottom line is it looks like the US economy has turned (growth slowing) and the data coming out will now show declining numbers with risk to the downside. Weakness in China looks to be getting worse: https://www.theguardian.com/business/2019/jan/02/stock-markets-dive-china-manufacturing-contracts-ftse-wall-street-us-economy-business-bleak-start-to-2019 Europe is not great. Italy is a mess. The UK is a mess. Trade wars add to the complexity (and the risks). Politically, populism is just getting started; as economies slow and enter recession it makes sense to me workers will not be so patient. Politicians will fan the flames to get reelected. Nationalism will be a natural outcome. The 1930’s can perhaps provide some insight. In Washington we have a President that i have little confidence in (to be able to handle a crisis in the proper way). This simply increases the risk of a bad situation getting worse. Bottom line, i have been increasing my cash weighting. Capital preservation is more important to me in the current environment than return. I guess what i am really asking is can things get worse from here? Is this the bottom? Or are we only in the early innings of this 9 inning game? My read is we are perhaps only 33% of the way though this current weakness in financial markets (with another year or two of turbulence ahead). PS: Gundlach does his annual forecast presentation on Jan 8 and he will be going over all the US data. https://doubleline.com/latest-webcasts/ Link to comment Share on other sites More sharing options...
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