Is all A.OK now? Well, no...let's look at the state of the world.
China: I think China’s economy is in a deep recession – they just won’t admit it.
The banking system there is on the verge of a serious crisis – the Chinese reduced bank reserve limits a few weeks ago to spur even more lending and spending. Doing this is like eating your seed corn…it tastes great for a while, then you starve.
China has threatened Taiwan – foreign adventures is what leaders do when the news at home is bleak. They would not have raised the Taiwan issue if they did not see dire economic issues in their immediate future.
New outlets like the Epoch Times have reported that millions of Chinese workers have returned to the country-side where they originally came from, as thousands of businesses are failing all over the country. Auto sales fell last year in China for the first time in 20 years.
This is not good. It is not the fault of the Trump tariffs, although these have hurt. China was moving South well before Trump took them on.
North Korea: Trump will meet Kim Jong-un again! All good, and let's hope for the best, but such a meeting is replete with risk.
North Korea has recently laid down some significant markers – basically, the USA has to cancel the sanctions or they will keep going “Boom!” I think the US will likely take a more bellicose stance on North Korea now that Boulton is firmly ensconced in the White House. Regardless of the meeting, I don't think the sanctions are going anywhere…the North Koreans will very likely keep going “Boom!”
Brexit: Brexit is an insane farce! They have a deal that no one will approve! Apparently, May will not seek a mandate from the people of Britain to approve it. She needs a Plan B, and her ally is supposedly Corbyn!
Something will break – it will be May’s determination to not have another referendum. I thunk she will stoke the chaos and will wait until the last moment – mid to late March – which will maximize the international stress. Brexit will die. May will be out of office by June. Thank God.
USA: The US economy?
Public sector borrowing in the USA is now at 135% of GDP. The USA will borrow over $1 Trillion this year. I think they will face a debt downgrade in 2019 that will rock the market. With complete stasis in the Congress, the deficit will only grow more, undermining confidence.
At the same time, interest rates have gone up after being at their lowest level ever for almost a decade. The market heard that rates will rise more slowly recently, but it is too late - rates have to go back to zero for this market bubble to continue, and that will not happen before the bubbles in real estate and the stock markets burst.
What we are seeing in the stock market is a slow unwind that started about this time last year, and which could take the rest of 2019 to complete. Last year the market was only supported by buy-backs that will not continue now that rates have moved up and Trump's tax cuts are over. Further rate reductions will not be enough to ward off the next great recession.
France: France will see continuing turmoil. The latest "yellow vests" uproar stems from the fact that the professional political class in that country has started to tell the populace that it is time for austerity, going right to the heart of everything the French have been promised for decades - lucrative pensions, six weeks of annual vacation, the best medical system on earth and so much more, all while borrowing 3% of GDP every year.
The populace is "on to" these people now - they know that their esteemed political class lied to them for decades about their entitlements, and they are outraged. The almost unbelievable arrogance of Macron doesn't help. There is no answer for this, as it stems from upset that has its origins in how the French state has been set up and with a French President who is not going anywhere.
Yes, I am quite negative. I call it like I see it.
And so, I'm still short. When the S&P 500 hits 1,500, I'll take my short position off.
