The night grows long. Was it but one lone night. Perhaps it was many. Minds wander. Sleep eludes. No sanctuary. No need. So many thoughts pass quickly through the mind. An array of possible outcomes, not just for broad measures of human response, but for lives impacted in qualitative terms. Endlessly searching ... into the vast expanse of cold, eternal space. The mind, try as it might to unlock the path of one truth, finds only that familiar darkness of the office window. Still, the challenger rises. The challenger always rises. Many victories. So many losses. Still undefeated. The soul, undiminished through constant trial will fight again on this day. You wonder, perhaps if the author speaks of himself. Do not wonder for very long. You already know. The author writes of you. Stand and fight.
Global growth. You've already read the news. If you somehow have not, the IMF lowered the fund's estimate for global economic growth for calendar year 2019 on Monday to 3.5%. Yes, I know, they just lowered their forecasts in October, after having already done so in June. Yeah, thanks for showing up. As I have told anyone who would listen for many years, we will never learn anything listening to this crew. The IMF's Managing Director Christine Lagarde spoke from Davos (the way, way past it's prime, but still potentially news making World Economic Forum event). She said: "The risk of a sharper decline in global growth has certainly increased." Pretty sure the rest of us have understood this as common knowledge for quite some time now.
The meat and potatoes of this global economic slowdown, just to save the reader from tracking down a bevy of different articles, is centered around a few themed negatives, all forcing their own various uncertainties into free market price discovery. On top of the lack of European demand, the rapidly slowing Chinese economy, the partial U.S. federal government shutdown that I admittedly never saw going this far, one must look deeper. Also impacting that price discovery is the skew of both monetary and fiscal policies. Honestly, we may be so far down those rabbit holes, as to render us unable to recognize a free market if we even ran into one.
At the root of decreased European demand there exists the growing possibility of a no-deal Brexit, there continues to be visible unrest in the streets of Paris, all as the German economy narrowly fends off recession. It is easy to blame the slower Chinese growth on the trade war, and that has certainly been a drag on growth, but at least the start of this era of slower economic growth was initiated by the regime itself. Under President Xi, the central government in China, aware that endless fiscal stimulus had fostered the growth of debt bubbles at not just personal, but also across the levels of government had made an effort to slow the excessive stimulus. Exacerbated by the trade war with the U.S., China is left looking at potentially the slowest growth that nation has experienced in nearly 30 years.
Does the Chinese government return to expanded stimulus? By all accounts, they already are through reduced reserve ratio requirements for lenders as well infusions of cash into China's banking system ahead of the Lunar New Year. Do they return to the days of expanding on infrastructure in order to keep the economy chugging along?
We all seem to think that we know that the Chinese will announce that their own range of expectations for 2019 GDP will fall in between 6% and 6.5%. Does that concession force the Chinese into a more compliant position in coming to a trade war peace with the U.S.? By all accounts, the Chinese had already offered sizable concessions in terms of trade to the Trump administration. But there's a noticeable lack of progress, however, on perhaps the most significant demand made by the U.S. That would be where intellectual property rights and the matter of corporate theft are concerned.
There is a risk-off theme running though the marketplace overnight globally. The ECB meets on policy later this week. At this point, it looks as if that central bank, after being overtly surprised by this economic downturn, even after lowering their own expectation for the euro-zone in three successive sessions, will find itself unable to even mention lifting interest rates. With the Federal Reserve apparently in retreat, the ECB is a horrific spot, the PBOC likely to add stimulus short term rather than withdraw, and Japan padding fiscal measures of stimulus... just how far do we go? Can the dollar stay relatively strong? Relative... that is they key. Either they all play tough, or they all don't. That's how they will continue to keep the public in the dark. You know it. I know it. Still you need cash.
I have no idea how the rest of the week, or month plays out. Obviously, a positive resolution to the dispute between the U.S. and China, or between the UK and the EU, or between the Republicans and the Democrats, will all in their own rights cause risk-on moves, despite the fact that all of these economies will continue to struggle after the news is digested. A combination of positive outcomes could cause a mountain of market inflows. One can gamble. One can remain disciplined.
Late Friday, as the market got that short squeezy feel... I took some profits in some of my top performing 2019 names... Nvidia (NVDA) , Micron (MU) , Schlumberger (SLB) . More cash? Yes, more cash. I remain at very high levels. Have I given up on these names? No. (Well, in the case of Micron, kind of yes... but when you recover a fumble on the two yard line you don't ask why.) I believe that U.S. equity markets are extremely vulnerable right now. The S&P 500, having now broken out of the October through December downward sloping Pitchfork will look to base somewhere. I now see all four major indices plus the Dow Transports standing above the 50 day SMA, but well below the 200 day SMA. A lot of room in either direction. How does one maintain exposure to the upside? Invest as if there will be several positive headlines. How to mitigate volatility without adding expense? Expose a smaller percentage of available funds. Take gift profits. Rebuild those positions at targeted discounts if the corporate story remains intact. Opportunity presents. It always does.
Economics (All Times Eastern)
10:00 - Existing Home Sales (Dec): Expecting 5.25M, Last 5.32M SAAR.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (FITB) (.28), (HAL) (.37), (JNJ) (1.95), (SWK) (2.10), (TRV) (2.23)
After the Close: (COF) (2.38), (IBM) (4.82), (WYNN) (1.34)
(Schlumberger and Johnson & Johnson are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells SLB or JNJ? Learn more now.)