Dear Clients & Friends,
This weekend, we will update you on the “big picture” view of our market outlook and current ongoing volatility. Then tomorrow, we will send to you Brad McMillan’s Monthly Market Risk Update.
I imagine that everyone’s big question is whether or not 2019 is the year for a recession. Well, it’s hard to say. We think that the economy has enough gas left in its tank to set another market high, although if so, a new high point in 2019 may be the last one prior to a recession- a forecast that we’ve been making for quite some time.
I’ll be honest with you: things are getting worse. We’re not in panic mode, but the metrics are deteriorating faster than we had expected because of a significant and unnatural economic headwind created by the tariff war. Many say that there are no “winners” when it comes to war. Regardless of political opinion and long-term hopes, the effects of this tariff war have been devastating in the short run. 84 farms have already declared bankruptcy in the Midwest. Meanwhile, China’s trade surplus remains at an all-time high, which is good for China, and the US trade deficit remains at an all-time high, which is very bad for the US. Basically, nothing has changed.
In short: this war will not have a winner, and currently, we seem to be hurting more than China. The effects of the tariff war have caused chaos in the investment markets and have the ability to accelerate further declines, potentially leading to a self-perpetuated early recession.
On the brighter side, there are several reasons why we are confident that this short-term triple-dip will recover before the next recession. We follow insider trading very carefully (the legal kind - corporate executives and the like). We’ve found that insiders have been very bullish towards their own companies during recent market declines. This indicates that insiders believe that their own companies are undervalued at these levels, and common sense dictates that they know their companies’ value better than anyone else. This is why we put a LOT of faith in the Vickers Index, which is a measurement of insider transactions. In addition, employment and business confidence are both at 10-year highs, and corporate earnings growth isn’t bad.
Confidence, however, is a major determining factor in market performance. Let’s not forget that the stock market is a giant auction. There are buyers and sellers that meet at an exchange, and if there are more buyers than sellers, the market goes up. Conversely, if there are more sellers than buyers, the market goes down. 50 years ago, a floor trader would represent a buyer at a physical exchange, whereas today, it’s mostly electronic. But the principle is the same - it’s one gigantic auction.
Investor sentiment and confidence have recently retracted. With trade war concerns, a tax code that appears to be unable to pay for itself, Brexit uncertainty, fears of a longer-term global economic slowdown, etc., we can see why investor confidence is waning. However, the current strong insider confidence levels contradict this. This conflict is notable in two ways. If insiders are doing one thing and the public is doing another, it is usually an indication that the public is wrong because insiders know better. This would be a reason to follow the insiders and buy into the declining market. However, since insider confidence and investor sentiment seem to decrease rapidly every time the market rises a few percentage points, we become increasingly confident that the gas in the tank is limited.
But ‘tis the holiday season, so let’s end on a high note. Consumer confidence, which is different than investor confidence, is very, very high right now. This leads us to believe that the holiday season will have strong sales and post big numbers. If we can get some relief from this tariff war, the markets could have a quick jump come the new year. So, get out there and buy some cool stuff for some cool people. If you need suggestions for gifts, have a look at our “Gifting with Purpose” article from last weekend for some ideas that have a great impact on the community.
We hope that everyone has a happy holiday season. -Matthew
Matthew Ramer, AIF®
Principal, Financial Advisor
MOR Wealth Management, LLC
1801 Market Street, Suite 2435 Philadelphia, PA 19103
P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |
601 21st Street, Suite 300 Vero Beach, FL 32960
P: 772-453-2810
matthew.ramer@morwm.com | www.morwm.com
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