WASHINGTON. Our first article in this two-part series explored the first three of six key reasons why we continue to endre this fall’s miserable market action. As of today, Friday, the last day of November, the relentless negativism of Wall Street’s aggressive bears has essentially erased the entirety of the US stock market’s once substantial 2018 gains.
In the second article in this series, we explore the final trio of reasons behind this fall’s tsunami of negative market bets. Fake, aggressively anti-Trump “news” hasn’t helped Wall Street’s mood. But poor earnings comparisons, Chinese technology kleptocrats, and the increasingly sclerotic bureaucrats that control the Washington Swamp all share the blame for Wall Street’s currently declining fortunes.
And now, our Final Three reasons for the sudden, unwelcome appareance of those aggressive bears.
2019 quarterly earnings consensus figures that likely won’t come close to 2018’s
This one should be obvious. But lazy financial journalists don’t talk about this, likely because it’s boringly predictable news. And because it’s nothing that makes President Trump look like an idiot.
After Q1 corporate earnings figures hit the wires – often anemic, given the switchover to the new GOP tax bill’s provisions – following calendar quarters proved phenomenally robust for many, many US companies.
With dramatically lower tax burdens, and an ability to repatriate perhaps billions of dollars long parked abroad, quarterly comparisons between 2017 and 2018 earnings soared, sometimes phenomenally. And if there’s anything investors love, it’s big, positive quarterly comparisons.
But by Q1 or Q2 2019 – at least for those companies using the calendar year for their fiscal year – upcoming quarterly comparisons will look anemic, even though earnings will likely remain quite good. But the media, high-speed computer traders and perma-bears will claim that Trump has led us into an investment swamp of no return, emboldening bears and souring bulls.
The fact is, save for a couple of cyclical sectors, year-to-year comparisons, for the most part, will only look anemic. That’s because they’re going to be compared to FY 2018’s artificially spectacular earnings comparisons over FY 2017. This is a no-brainer. But it’s boring and unsexy, so no one will mention it.
Aggressive bears suspicious that US-China trade war will go on forever
Yes. It might. And Thursday and Friday’s return to bearishness this week amply documents this not-unrealistic fear.
The real problem with this one is 21stcentury Americans’ general acceptance of political and economic news as Short Attention-Span Theater. In other words, if a story, like a sitcom, doesn’t conclude in 30 minutes, both reporters (so-called) and audiences alike lose interest or forget about such real-life shows.
In the case of the US-China trade conflict, neither reporters nor the public (because of the dishonesty of the reporters) don’t understand that this could be a long game. That’s because the real core issue here is the nearly 30 years of technology and trade secret theft the Chinese government has been accustomed to enjoying. Why should they waste the time, money and high-paid personnel to invent products and processes themselves if they can steal them from us at zero cost?
This game has got to stop, or America is done for as a viable nation. And so is Europe, for that matter. While Deep State elites and wealthy faux Marxists would love this, most middle-class and working-class citizens of (nominally) Western democracies will not.
How the media will play it
The media insists that the US-China trade battle amounts to Donald Trump’s latest blunder. They claim he wants to revive the self-defeating Smoot-Hawley tariff machine of the 1930s. The result? Few voters understand this so-called “trade dispute” involves the survival of Western civilization.
So, every time we hit an impasse in negotiations with China, you’ll get stories like Thursday’s anti-Trump meme. These stories get away with blaming market declines on the presence of one relatively inconsequential dude during another round of fruitless trade negotiations. China doesn’t want to stop getting free stuff from stupid American governments. Aggressive bears can instigate yet another negative firestorm if the Administration can’t turn this situation around. Soon.
A fear of incoming Federal government stasis for the next two years
The media immediately rejoiced at the Democrats’ pyrrhic (and partially stolen) takeover in the House. They constantly repeated the boring mantra that “a divided government is always best for the country.” It’s not. It only means that Republican aims are at least partially thwarted for X years to come. In-the-bag “journolists” and Fedeal bureaucrats regard this development as a very good thing. And why not? They’ve effectively controlled The Swamp since the election of Franklin Roosevelt in 1932.
What does this mean for the rest of us? It means that except for Federal judge appointments, Trump’s drive to revive America’s middle-class is finished until 2020.
It might also mean that a Democrat-led House could play impeachment games with President Trump. Trump, in turn, might expose the shockingly well-planned Democrat-Socialist effort to overturn 2016’s election results. Those as-yet unreleased FISA warrants allegedly contain the truth. But Trump could legally choose to make them public.
If this next bit of political kabuki theater occurs, social, governmental and economic catastrophe could result. Who blinks first?
This alone could scare investors from making any positive bets on anything until the situation resolves. Knowing Washington as we do, that resolution might never happen, given our increasingly feudal government.
Taken as a whole, the six very real fears discussed in this and in our previous article could likely keep markets on edge for months. Positive developments in international trade could still get 2018’s forgotten rally back on track. But negative developments might confirm fears that either a cyclical or even a secular bear market has begun. If so, investors will continue to head for the hills. Aggressive bears will accelerate the pace of their negative bets. And stocks will plummet into the lowest circle of Dante’s Hell.
— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.