So far, so bad...
Economists, media pundits, and mostly gamblers are re-learning an important lesson, which is that if you wait until "the data" confirm what markets are already saying, then it's too late:
"A weaker-than-expected economic reading on manufacturing sent the Dow to its lows of the day. ISM's manufacturing index fell to 54.1 in December, economists polled by Refinitiv expected 57.9."
Bonds, stocks, and currencies have been warning of economic slowdown for months. But ever-wrong economists and the economic establishment refused to believe "markets". Far worse yet, the Fed drank the same Kool-Aid, tightening on both ends. Which means that gamblers were breaking the critical axiom: "Don't fight the Fed". The Fed has been tightening on both ends for over a year now. Which has created a new deflation cycle. It always does.
We're STILL seeing extreme levels of delusionary denial in stock futures, oil futures, and speculative (short) bond futures, all of which are getting margined out as I write.
Likewise, corporate executives kept the faith because they are massively over-invested. There is now far too much corporate balance sheet leverage for the cycle to end right now. Stock buybacks funded with debt accumulation are the locus of corporate self-destruction. Corporate debt is at all time highs relative to GDP, which means that stocks have turned into a call option on the economy. Heads they win, tails bondholders own the company. Corporate bankruptcy will reach levels last seen in the 1930s.
Corporate debt / relative to GDP:
"There wasn’t a single trading session of gains since Nov. 1 save for the very last day of the year, as mutual funds sold to meet redemptions and new CLO activity slowed due to heightened volatility"
Wall Street prognosticators expect gains of as much as 6 percent in 2019."
The second lesson to be learned - is what should have been learned in 2008 - you can't trust Wall Street
The third lesson that gamblers - including Wally Buffett - are learning now the hard way is that record stock buybacks mean absolutely nothing when growth is slowing.
They come to be seen for what they are - an unsustainable impingement on the balance sheet:
The fourth lesson now being learned is that there is no such thing as "decoupling" of the U.S. economy and stocks from the rest of the world, much less China.
"There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded ... until we get a deal with China," Hassett said on CNN. "It's not going to be just Apple."
"Their economy, for them, you might call a 'recession.' It's slowing down in a way that they haven't seen in a decade."
The negative correlation between U.S. stocks and the rest of the world was a temporary aberration due to the tax cut:
However, the most important lesson to be learned is to never conflate good luck, bailouts, deranged Twitter gibberish, and money printing with good skill.
It's not a viable long-term strategy
