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BCN Advantage – 2018 Annual ReportFebruary 27, 2019
Jeff Bratzler, CFPBCN Financial
For 2018, the S&P 500 fell -6.2% to 2,507, the Nasdaq -3.9% to 6,635, and the Dow -5.6% to 23,328, breaking a streak of 9 straight years of market gains. The IBD Mutual Fund Index declined -9.1%. The average hedge fund lost 6.7%. The S&P 500 dipped into official bear market territory, declining by as much as 20.2% during the worst December since 1931. Still, this may turn out to be the shortest-lived bear market in history, as the infamous “Fed Put” is back in effect. In October 2018, the Federal Reserve started to roll off $50 billion per month, precipitating the worst quarter for stocks since 2008. Jerome Powell struck an entirely different note on January 30th, 2019, as he essentially capitulated across the board: “The Fed will now be patient in regards to interest rates.” Markets are no longer expecting 2-3 rate hikes from the Fed this year. They are expecting zero rate hikes or possibly even a rate cut. And “almost all participants” supported announcing an end to the balance sheet normalization process this year. The FOMC originally believed the balance sheet runoff could last until 2023. The ability of the Fed to bail out markets today is much more limited than it was in 2008. Then, the Fed's balance sheet was only $915 billion, and the Fed Funds rate was 4.25%. Today, unemployment is 4%, not 10+%. Corporate debt is at record levels. The government is running $1 trillion deficits during an expansion. The economy is extremely long in a growth cycle, not emerging from a recession. Such an environment could make further interventions by the Fed less effective. America has never been so indebted. Therefore, rates don’t need to return to past levels to have a detrimental impact on the economy. Total debt today is roughly $69 trillion. This includes state, local, federal, corporate and household. At the peak in 2008, total debt was roughly $54 trillion. Debt that is not self-funding is future consumption brought forward. Because of the Fed’s decade-long measures to artificially suppress interest rates and flood the system with excessive liquidity, we have enjoyed consumption and growth that cannot happen in the future. S&P 500 earnings increased more than 26% in 2018 but are expected to grow less than 8% in 2019. Global growth Is less synchronized. The international stock index EAFE has been negative in 5 of the last 11 years, including a -14.2% drop in 2018 as trade tensions with China intensified. Market structure is one-sided and worrisome. A tenth of a percent of the stocks in the world comprise 15% of world market capitalization. Investors have been draining money out of U.S. stocks to the tune of nearly a quarter of a trillion dollars. At the same time, U.S. corporations have poured a record $1 trillion into share repurchases. As the Fed rolls $50 billion per month off its balance sheet, the onus for absorbing Treasury issuance falls to markets. The more issuance at a time when the Fed is pulling back, the less liquidity available for risk assets. Meanwhile, Fed hikes drive up the yield on cash, making it viable as an asset class for the first time in a decade. Last year, cash outperformed 90% of global assets. With the Fed acting to support asset prices, the decline that began last October is probably no longer the start of a bear market, but rather the conclusion of a significant correction. Since 1928 there have only been four cases of consecutive down years, and stocks have been higher in the 12 months following every midterm election since 1946. The Fed’s 180-degree policy shift will likely prolong the economic expansion, making a recession unlikely until mid-2020. But while we recognize the possibility of new highs, this remains a high-risk, late-stage bull market. Expect a tough back-and-forth struggle as the S&P 500 makes its way back to 2,800. But if the bulls can regain control and push prices back above the November highs, then the “bear market” correction of 2018 will officially be dead. The path will then be open for another potential run to 2,940 and new all-time highs.
Why Haven’t Boomers Done Better in the Markets?May 17, 2019
Lance RobertsSource Address    Seeking Alpha
First, on an inflation-adjusted, total return basis, long-term holding periods regularly produce near-zero or negative return periods. Secondly, given that most individuals don't start seriously saving for retirement until later on in life (as our earlier years are consumed with getting married, buying ...
Does A Watched Market Ever TopMay 14, 2019
Clif DrokeSource Address    Seeking Alpha
We've all heard the saying, "A watched pot never boils." Not many realize, however, that this bromide can also apply to the stock market. For when everyone is waiting for the market to top, the top never comes. Seemingly, everyone is looking for stocks to peak out during the latest earnings season. ...
Japan Central Bank Bubble Is Truly RemarkableMay 13, 2019
Lisa SchwartzerSource Address    Seeking Alpha
Japan's economy was a huge success story during the second half of the 20th century. However, in recent decades economic growth has been nonexistent, debt has accumulated, the population has begun to shrink due to low birth rates and low immigration, and so the central bank has turned to a variety of ...
Japan Central Bank Bubble Is Truly RemarkableMay 13, 2019
Lisa SchwartzerSource Address    Seeking Alpha
Japan's economy was a huge success story during the second half of the 20th century. However, in recent decades economic growth has been nonexistent, debt has accumulated, the population has begun to shrink due to low birth rates and low immigration, and so the central bank has turned to a variety of ...