Timestamping Market Indicators; or, the form of no form

Investing is a kind of combat, mostly of the investor against herself.

Every time the U.S. market goes into a serious downturn, a roundelay echoes across the financial world as bull market sycophants cry out: “No one could have seen this coming”.

Of course, this is a lie.  Anyone willing to look honestly at the markets can see when risks are rising, valuations are high, markets are weakening, and other indicators raise red flags.

In this post, I am time stamping a number of existing negative indicators, near-term risks, and long-term, structural headwinds.

Please don't misunderstand me.  I'm not a permabear, I'm a permarealist.  Any biases an investor has are just rocks they founder upon when the prevailing winds change.  Instead of holding on to various investing "disciplines" investors should seek to emulate Bruce Lee’s Jeet Kune Do, which is a style of no style.  Lee had this to say:[1]

I think simply to practice gung fu forms and karate katas is not a good way.  Moreover, it wastes time and does not match the actual (fighting) situation.  Some people are tall, some are short, some are stout, some are slim.  There are various kinds of people.  If all of them learn the same boxing (i.e. martial art) form, then who does it fit?

Investing is a kind of combat, mostly of the investor against herself.  If there is an outward opponent, it continually morphs in style and body type.  If the investor is stuck in one style, they will surely lose.

Successful investing requires understand the business cycle, where we are in the cycle, and the different types of investing required at different points in the cycle.  This is the form of no form, the style of no style, and the way to successful investing.

End of Cycle v. Early and Mid-Cycle

The primary difference between late cycle dynamics and those in early- to mid-cycle markets is that at the end, any negative shock can be the straw that breaks the camel's back.  In contrast, early- and mid-cycle markets eat up bad news and keep going higher.


  • Argentina Merval Index down 45 percent in one day off a primary election vote was the third biggest one-day index decline ever, this doesn't happen in strong global market environments;
  • Third highest CAPE ratio ever;
  • Russian active measures in U.S. election hacking in 2016 is, essentially, an act of war;
  • Trade war/tariffs;
  • Global manufacturing recession;
  • European recessions (see Italy and Germany);
  • Russell 2000 approaching bear market territory;
  • South Korea KOSPI down 26 percent from June 2018 high (leading indicator of global economy);
  • Copper down 24 percent from June 2018 high (leading indicator of global economy);
  • Oil down 25 percent from October 2018 high;
  • Retailers down 27 percent from August 2018 high, even though retail sales are "strong";
  • $16T of government bonds with negative yields;
  • Yield curve inversion;
  • EU banks on inexorable path to bankruptcy (see Deutsche Bank);
  • Japanese banks down 47 percent since May 2015 high;
  • Tech bubble popping as unicorn IPOs fail;
  • Hong Kong trade disruption;
  • Supply chain disruption for U.S. firms;
  • U.S. S&P 500 earnings growth sub-two percent for the past two quarters;
  • U.S. can't generate two percent inflation with unemployment at 50-year lows;
  • Populism/nationalism rising as globalization hasn't worked for the vast majority of the developed world.  People are no longer sitting quietly as their jobs are traded for cheap flat-screen TVs.
  • Currency wars (everyone against the U.S.);
  • U.S. economy is in the longest, but weakest, economic expansion in the history of the country.


  • Employment has been strong. Employment is a lagging indicator which is 18 months behind the current environment;
  • Retail sales have been strong.  Retail sales have held up because retailers have committed seppuku, sacrificing profitability to move the merchandise.  Retail stocks are down 27 percent in the past year.

PotentialNear-Term Negatives

  • Trade war/tariffs continue or escalate;
  • Middle East destabilization/war after Iran nuclear deal rip up;
  • India/Pakistan war (both are nuclear powers);
  • Hong Kong (If China sends in the army, it could cause international issues);
  • Brexit, no deal likely;
  • Continued Russian active measures in U.S. election hacking could lead to active retaliation;
  • Further supply chain disruption after Trump "orders" U.S. firms out of China;
  • Global economic weakness spreading to U.S.;
  • U.S. firms face toughest comps in U.S. corporate history in third quarter;
  • EU banks get nationalized;
  • Global dis-integration as it is now every country for itself;
  • Narrow leadership in four S&P 500 stocks could fail badly as the DoJ, U.S. states, and the E.U. come after the FAANG companies for being evil;
  • Trump Tweets;
  • Environmental stress;
  • Election of a Democratic president who raises taxes on corporations and the wealthy, and re-regulates U.S. businesses.

PotentialNear-Term Positives

  • Trump tweets.


  • U.S. pensions effectively bankrupt as their liabilities are greater than their assets (record low interest rates are hastening the coming insolvency);
  • Debt is deflationary and the world has gone on a debt binge that cannot be repaid.  This will permanently depress future growth;
  • Negative yielding debt is deflationary and tightens monetary conditions as it removes money from the system.
  • Environmental stress;
  • Phase transition.  A shift to a new economic and monetary system is likely in the cards as the traditional economic playbook of central banks has proven to be completely ineffective.

What'sDifferent This Cycle?

TheFed is out of bullets.  In past easing cycles, the Fed has cut interest rates by an average of 500 basis points.  Fed Funds were at 250 basis points at the start of this cycle.  Quantitative Easing has only accomplished the inflation of risk assets and the enraging of the populous as U.S. wealth inequality has reached the levels of sub-Sahara African dictatorships.[2]

The rest of the world is even worse off with entire sovereign yield curves in negative territory.

Unlike2016 when the U.S. and China worked out the “Shanghai Accord”, China won’t be stoking the global economy with trillions of dollars of stimulus.  Indeed, they have been tightening their money supply.

[1] Jeet Kune Do: Bruce Lee’sCommentaries on the Martial Way; Compiled and Edited by John Little; (1997) CharlesE. Tuttle Co., Inc.; Boston; 27.

[2] Inequality index: where are the world’s most unequal countries?; The Guardian.  Available at: https://www.theguardian.com/inequality/datablog/2017/apr/26/inequality-index-where-are-the-worlds-most-unequal-countries; Accessed August 27, 2019.

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