The market speaks in strange tongues.
For most of my investing life, the market has made a lot of sense. When you see individual stocks getting crushed, it's almost always a prelude to something disastrous. When you see a soaring stock, you presume, often more correctly than not, that something positive is about to happen.
Not in this market.
This market just does nothing but confuse.
For example, for weeks now with the rally in bonds and the utilities, the market's saying something pretty darned obvious: We will soon have a recession. You do not see the transports, the industrials, the banks and the techs hit relentlessly if the economy is strengthening. Nope, it's a sign of an imminent recession.
But that's seemingly inconceivable. We just got a pretty strong employment report. There is undeniable strength across the country and there are many areas where there are pretty severe labor shortages, shortages that can only be cured by more immigration -- which is unlikely with this President -- or a Fed-mandated slowdown -- which is likely with this Fed Chief.
So people presume the latter, because there has been no real refutation of the Fed Chief's earlier predictions that funds rates have to keep going up. The Fed has friends it confides in, who signal in the media what it thinks -- and right now the voices are totally confusing, with some of the acolytes refusing to concede that there is anything BUT strength and saying the Fed will stop it, and stop it without any problems. This is the "all-knowing, all-seeing" Fed of fiction, which is propagated by the Fed to the media.
It would be fabulous if it were true. If anything, though, this period has stepped up questions about the Fed's credibility -- as in "how could they be so wrong so fast?"
Anyway, we can't seem to take "recession" off the table, because stocks are saying "we are going into a recession" -- and there's nothing that would say otherwise.
The only analogue to this, as my friend Ed Yardeni points out, is 1987 -- when the stock market told you we were going to have a recession with its huge decline from 2800 to 1400 in a matter of weeks, but then nothing happened, and the stock market was out and out wrong in its prediction mechanism.
Why was it so wrong? Because it had been driven up by relentless Japanese buying, taking the S&P 500 multiple to 29x and then down by program trading: The stock market stopped functioning correctly and the machines overwhelmed the people involved.
Sound familiar? The algorithms are the machines now and they are overwhelming everything, very '87-like and, like 1987, no one seems to know how to shut them off, least of all the government.
Conclusion: This economy is either going from 90 mph to minus 30 mph, or this stock market isn't functioning right. I am usually reluctant to say the market isn't functioning right. But we all know it isn't. And before you say, "well you didn't complain when it was going higher," I have to say "shut up," because I have been complaining about the ETF nonsense and what it does for ages and ages -- to the point where I feel I have been a broken record.
The only thing as confusing as the Fed and the imminent non-recession, is the trade situation, where, within the SAME 24 HOURS we had a major breakthrough in trade in Argentina and a major collapse in trade in Canada. The Argentinian peace, which gave you the impression that talks were going well, and the Canadian war, which ended any hope that talks could go well, happened simultaneously.
Could there be anything more confusing than that? Yes, the president himself, who says he is a tariff man, and then says that talks are going well and the Chinese need a deal, and puts out his chief economic adviser Larry Kudlow to say that the tariff deadline is soft and could be extended, and then two days later puts out Robert Lighthizer as his negotiator, who says it's hard and there are no extensions.
What's truly incredible is that the President doesn't seem to understand his own strong position. The Canadians arrested Meng Wanzhou, the CFO of Huawei, a $100 billion firm, because they believe they agree with the strength of the U.S. case. Why not use it to encircle China? Because if Canada believes, so must others. But that looks to be way over his head.
It's not just the economy and trade that confound. Oil confounds, because the stocks say it's going to the mid-$20s, even as that seems inconceivable given the economy's strength. The transports confound, because if business is so strong, they should be flying. But they are being ground to dust. Housing confounds, because if employment is so strong, it should be strong. But it's weak. The President seems strong but the papers read like he will be indicted any day now.
Is there any wonder why stocks just can't rally and dips are deadly? In fact, that's the only thing that really makes sense to me, hence why the darned things keep going down!
