Pls. hold. -T WASHINGTON. What a difference a month makes. We’re talking December 2018 vs January 2019. The final quarter of 2018 was a real investor bloodbath, a classic showdown pitting worn-out bulls vs rampaging bears. By the end of December, the bears had clearly won. Big time.
But in January 2019, markets suddenly and decisively reversed course. As February begins with the bears on the run, and as the recent Polar Vortex recedes, it looks like Phase 3 of the Great Trump Rally might already be upon us. But with President Trump’s sure-to-be-controversial State of the Union address finally back on deck, the big question is: What will happen to stocks in February?
Can we call Q4 2018 a cyclical bear?
For us, at least, Q4 2018 was at least a cyclical bear market that threatened to become a secular bear. In other words, it looked very much like that bloodthirsty December downdraft would replace the long-running, post-Great Recession bull market. A market that the Great Trump Rally spectacularly extended for nearly two more years.
Defensively, we battened down our investing hatches, raised cash, quickly exited most of our weak positions – sometimes for a loss – then we hid out from the bear in a few broad-based ETFs, a couple of utility stocks, and a substantial number high dividend-paying, short-term preferred stocks.
Bears vs bulls; or Fun with the Fed
That latter preference was a defensive maneuver against an interest rate-happy Federal Reserve. The central bank’s foolish eagerness for a return to interest rate “normalcy” was, in actual fact, what largely initiated last fall’s Daisy Cutter attack on nearly every investment portfolio in existence.
The resulting investor carnage was horrendous. The bears ferociously attacks any stock they could find. The resulting carnage among the bulls approached legendary proportions.
As a result of a growing public, private and political outcry, the Fed finally capitulated to market forces – at least for now. After the conclusion of its mid-January meeting, Fed Chair Jerome Powell signaled that the Fed was done jacking up interest rates needlessly. Again, at least for now.
Powell also took care to emphasize this action was not the Fed’s response to President Trump’s pointed jawboning activities, via Tweetstorm, as usual.
The big problem with Washington
But the Fed’s sudden dovishness might very well not have occurred without Trump’s ability to keep the Fed’s overreach in the news. In so doing, he increased the pressure on the central bank to act in a way that even our local trash collectors instinctively knew was obvious.
It’s typical that the Fed, like virtually all other Washington institutions, simply pooh-poohed the ravings of the deranged idiot-boy who somehow managed to find lodging in the White House under a four year lease.
The problem is, Trump is instinctively right far more than he is wrong. Yes, he is dumb. Like a fox. But institutional Washington just can’t accept this outspoken businessman-outsider as the nation’s leader. He’s just, well, just too… deplorable to be taken seriously.
Which is America’s biggest problem right now. America’s “leadership,” including the lamestream media, will not accept or even acknowledge any opposition to their provably wrong but long-held certain certainties.
Washington’s Royal Smart Persons do not have a clue
All the Royal Smart Persons in Washington think they’re so much smarter than the Great Unwashed that they don’t need to take any of those hicks and hayseeds seriously. But the Royal Smart Persons had better cut this out before they take it too far. Both the French and the Venezuelan peasantry are showing our elites what will happen next. Question is, are they listening?
Great Walls, small walls and no walls at all
Which conveniently gets us back to Mr. Market. The apparent – but not-guaranteed – return of the Great Trump Rally in January could possibly hit a wall this coming week. And we mean “wall” quite literally. While it appears that the previously battered bulls have gone back on offense, they’d better keep their eyes open for what lies immediately ahead.
Incoming this week: President Trump will give his Pelosi Shutdown-delayed State of the Union (SOTU) address to a joint session of Congress on the evening of February 6.
Viewers of the live, pro-Great Wall telecast will be treated to special-guest theatrics in the galleries; provocative presidential observations and suggestions; physical and perhaps verbal nastygram-gestures from Congressional Democrats eager to virtue-signal to their CPUSA supporters; snide, running commentary from the fake-news media; and a post-speech “rebuttal” from Georgia’s nasty, recently-failed but never conceding Democrat gubernatorial candidate.
Oh, yes, and almost certainly, as least one Communist Antifa thug and / or pink pussy-hatted Feminist 3.0 Marxist will try to disrupt the SOTU proceedings only to be carted out, screaming the usual “defiance” into the House chamber and thence into the night.
Real theater vs Washington kabuki
Unfortunately – or fortunately – this writer will be out reviewing a local production at a real Washington, D.C. theater. So we’ll have to catch the instant replay, either on Fox or C-Span.
Ultimately, the upshot of this latest Washington kabuki theater SOTU production will almost certainly involve a presidential announcement that wall-building has or is about to commence; the issuance of an already-prepared court injunction against it by an Obama-appointed Marxist “judge” – sorry Justice Roberts; more Democrat #Resistance / #Defiance; possibly Government Shutdown #2; and a looming deadline of March 1 for some kind of agreement from the Chi-coms that they’ve been international business thieves, spies and jerks but that they promise – in writing – to behave in the future.
Ending up with a Great Wall, one way or the other
All this could roil the markets quite severely in February as our usual bête noire – headline risk – could once again dominate the wonderful world of stocks and bonds. In other words, for all the wrong reasons, in February, investors could find themselves slammed into a metaphorical “wall” of chaos, negativity and confusion. We’re going to get a Great Wall, one wall one way or another. The bears eagerly await in the wings for a bearish Wal Street reaction
The Chi-coms and official Washington: two peas in the same pod?
Of course, the Chinese thing could work out more or less OK, goosing Mr. Market and the formerly pent-up bulls yet again. Saner heads could prevail in Congress. (Well, there’s at least a chance.)
Global warming climate change could turn out not to be “settled science.” The bears could find themselves routed before they even begin their counter-attack.
But having lived in the DMV – the District, Maryland and Virginia metro area – for nearly 52 years (minus a 4-year grad school interval), we figure we’ll be confronting most line items listed the negative scenario.
Washington has become a self-perpetuating bureaucracy machine whose card-carrying, Ivy League-degreed geniuses would actually prefer to rule over the masses in a top-down manner similar to the Chi-coms. They are completely disconnected from what was once our Constitutional Republican form of government. In this, they resemble the haughty, clueless Eurocrats and the state-controlled Chinese econo-crats.
Mr. Market turns bi-polar
Today, the bi-polar Mr. Market faithfully reflects this chaos. He initiates serial charges of irrationally exuberant bullishness. Then, virtually without warning, he collapses into snarling bearishness and despair.
This makes it tough for individual investors in particular. Having depended for years on the rational investment approaches offered by fundamental and technical analytical methodologies, investors now have to adjust to an era of investing by headline (fake or not) and / or by computer-generated momentum. Arguably fake arguments favoring first the bulls and then the bears cycle endlessly, like headline-driven circadian rhythms.
It’s not how you play the investing game…
The odds of winning this game consistently are similar to the odds of beating the slots in Vegas. It makes us question why we do this at all. But then we look at what we’re earning in out bank accounts, and promptly head back to the slots and the gaming tables.
Our strategy for the week: mostly sit still, keep a fair bit of cash on the sidelines. Then look to see which way Mr. Market decides to break after the mid-week SOTU speech. Determine whether you want to be one of the bulls or one of the bears.
At this point, your guess is probably as good as ours.
— Headline image: The bull looks set to go after the bear at the stock exchange in Frankfurt, Germany.
(Image via Wikipedia entry on market trends, GNU 1.2 license)