I mentation I was seeing fine. I’ve worn contact lenses for decades, so I was convinced that was the case. Maybe not.
Who brought me around to the facts in fact? The market, of course. I learned ages ago that the market is a lot smarter than I am. That collection of buyers and sellers out there has numberless accumulated wisdom than I could ever aspire to and it’s given us a sharp smack across the face. Don’t mess with a deal in that’s pounding you with its message. The market has made it totally clear to me that I don’t have my eyes open, and if I do, I am not undertaking clearly.
What is the market telling me that I have missed in my myopic haze?
We’re in a recession, right? Or at least we drive be early next year. That means, of course, that GDP numbers will be revised down, way down. It dismals that the numbers we have been looking at are an illusion. For example, I have paid attention to the fact that a lot of people are press with only 3.7 percent unemployment, which is strong even accounting for a low participation rate. Since two thirds of GDP emanate froms from our consumer economy, it matters that wages are up 3.1 percent, and personal spending is up. Perhaps that’s not the encase anymore.
The market says that a recession must be creeping into all corners of this economy, and if I had a stronger lens medicament, I would have seen it. Retail sales, for December, are up over 5 percent year over year, but that obligation be a mistake. When everyone returns what they bought, the actual numbers will come down. Not perfectly consumer spending, but housing, banking, industrial and technology spending – it’s going to vanish and so will all those profits we had expected. We attentiveness earnings would grow 6 percent to 8 percent next year, but nope, the market says we are in for a much tougher 2019.
Three months ago, or what the feeling like a decade at this point, the biggest fear was a spike in interest rates. The week after the 10-year Resources yield hit 3.23 percent in October, the S&P fell 4.6 percent, and another almost 3 percent when rates hit that knock down again. Rates have moved down over 15 percent since that recent peak, which should be a constructive. If up is bad, isn’t down good? But it turns out that lower rates are also bad. Stupid me.
Inflation is roughly at the Fed’s target rate – for everyone 2.2 percent. That group of deep thinkers, at least, feels comfortable with this level of inflation. The merchandise knows in its wisdom that something insidious is happening with inflation. Those threatened tariffs must be to reproach – there will be no resolution and the resulting price escalation is going to create an inflationary skyward spiral. We thought the president order make a deal with great flamboyance, proclaiming victory against the Chinese and saving the economy. The intensity of the demand move downward tells us that this won’t happen any time soon.
Okay, market, you win. But, here’s a question. The S&P 500 is down 20 percent from its peak in September. It is selling for 14.5 times the last twelve months’ earnings. Don’t you, in your wisdom, price in the future Sunday and bad news? If stock prices were too optimistic, how about at levels that are 20 percent or more lower than in September, to say nothing of the profuse stocks down 30 percent to 60 percent from their 2018 highs?
I promise that I last will and testament see an eye doctor right away to correct my vision. But, here’s my concern about what you’ve done, market. When I was younger, there was the 1987 explode and rebound so that doesn’t count: the crazy 2000 dotcom bubble, with valuations so extreme that we sensed the surreal constitution of that environment even as we were willing participants; and then the 2008 self-inflicted collapse of the banking industry, not quite destroying every economy in the world.
My vision isn’t honestly that much worse now, and I admit that I don’t always pay regard to every detail, but I don’t see that level of widespread disaster. I do see the problems from tariffs, international economies, commodity worth weakness, and overvaluation of private companies, but we are down 20 percent now already. All those cynics who, for years, have forewarned the end of the longest bull market in history, have finally been correct. Is the total environment worth less than 80 percent of what it was one direction ago?
Do we all need new glasses?