Happy 1 month Birthday to the Four Horsemen of the Stockalypse

On October 8, 2018, I warned of the four horsemen of the stockalypse.  These are each significant threats to the economy and the stock market. Just over one month since that post, all of these threats are more dangerous. Meanwhile the US stock market sails along, apparently unconcerned. 

Storm Looms. US investors remain unconcerned.

The Four Horsemen of the Stockalypse

1. The Fed Raises Interest Rates.
2. The Democrat party wins the House of Representatives.
3. Trade Wars.
4. The Market Raises Rates.

Here is a summary of each of the threats with updates below.

odds 10/8/2018odds today
The Fed Raises Rates90+%90++%
Democrats control the House75%100%
HUGE trade war90+% 90+% and sooner
The Market raises rates100%101%
Dow Jones 26,48725,989

1. The Fed Raises Rates

I swear I will raise rates until the market crashes

On October 3, 2018 (the day of the US stock market top), Fed Chairman Jay Powell signaled tighter money ahead.

Powell says we’re 

‘a long way’ from 

neutral on interest rates, 

indicating more [interest 

rate] hikes are coming

On November 8, 2018, The Fed indicated that they remain committed to higher rates ahead.

Fed Holds Interest Rates 

Steady but, Defying Trump, 

Signals Increases to Come 

2. The Democrat party wins the House of Representatives

The Democrats are back in charge of the House

On October 8, 2018, the chance of a Democrat party victory in the House of Representatives was 75%. Today the chance of a Democrat controlled House is 100%

3. Trade Wars (90+%)

In September, 2018, President Trump threatened a significant escalation of trade tensions with China.

China will not yield

Trump threatens new tariffs on $267bn of Chinese goods

What have we learned since October 8, 2018? First, we learned the Chinese have offered nothing since the threat.

Larry Kudlow [Trump 

top economic advisor]: 

China ‘has not responded 

positively to any of our 

asks’ in US trade talks

China is unlikely to concede. This leaves the US with two choices. Capitulate as the US did with NAFTA 2.0, or TRADE WAR.

Trump Trade Adviser 

[Peter Navarro] Warns 

That There Will Be No 

Quick Deal With China 

The author of Death by China is the lead negotiator for the US 

So a trade war with China looms. Both sides are digging in, and January 1st is eight weeks away.

4. The Market Raises Rates (100%)

US debt is usually stated as the highest since World War II. More accurately it is the highest in the history of the US. A persistent puzzle has been how can the world's largest debtor borrow at very low rates.

This conundrum will, eventually, be resolved with higher real interest rates. The US will not stop itself from its debt binge. The market will cut the US off by raising real rates.

Winter is coming in the form of higher real rates

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