What Will Hurt Markets This Year?

Fri, 2018/01/05 - 9:13am | Your editor
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A new high of the Dow-Jones inevitably makes pundits ponder what will pull the stock market back down. It only took 23 trading days for the DJIA to go from 20,000 to 25,000, the fastest rise in the index's history. Overnight the MSCI Asia Pacific Index advance a half a percent and the Japanese index gained nearly 1%.

The bulls are running and everyone is trying to guess which matador will first slay the creatures. It will not be in Catalonia (near where Catalan-laden Pamplona is locatedin Navarre). The sell-off will not be triggers in an increasingly marginal market like London or Frankfurt or even Tokyo.It must be on Wall Street. But the euphoria translates well according to S&P indexes: Brazil up 4.51%; Japan up 2.1%; Germany up 1.9%; Hungary up 1.1%; China and Britain both up 0.9%; Argentina up 0.5%; Hong Kong up 0.4%. The Swiss index and the London Stock Exchange both hit new records.

What will make the Dow and its fellow indexes fall?

It will not be yesterday's horrible snow dump in the US financial capital (which I missed by being in London) because the index rose despite the blizzard.

It's not going to be nuclear war because North and South Korea have arranged to begin talks and Seoul has postponed its 3-country military exercises until after it hosts the winter Olypics.

It's not going to be because of inflation because, despite the glorious US hiring binge, wages have remained tame. Now the Dec. report shows that US job growth slowed down because of lower retail employment in the runup to Christmas than had been anticipated. Department stores and some speciality retailers are vulnerable to internet competition, and that holds inflation at bay.

It will not be the speculative excess any fool can see in the bitcoin market frenzy.

It may result from the rise of the euro against the greenback but David Goldman who addressed that risk in Asiatimes.com says he is not sure. If Goldman is not sure about something it really is a hard call.

And it will not be the revelation that computer hardware (and not merely software!) is seriously flawed and vulnerable to hacking to steal data and passwords. This for the first time hurts Mac users as much as Windowers, and appears to be very broad.

Nor will it be the problems of regulating banks in Europe or negotiating a post-Brexit trade deal for Britain or even whether on not Prince Mohammed bin Salman's reforms are implemented. Since Putin is a shoo-in it markets will not suffer over his re-election, and because Italy is marginal it will not suffer over elections there. Spain has important political choices to make but they will not rock the boat for shares.

The German political impasse and the problem of what to do about Catalans will not derail the Dow because they failed to cut its rise. China, however populous and aggressive, is still far away. Japan ditto.

Realistically, as the accomodative Fed becomes tougher, there is no way that money won't flow out of stocks into bonds. Tax cuts, already in the price-earnings ratios,will not work their magic again.

My own guess is that the chaotic White House and the prospect of the Republicans losing their Congressional majorities will take down the US stock market and eventually those of tits trackers. Steve Bannon is prepared to play Samson to kill the Philistines if his revelations to Michael Wolff mean anything. As there is always an edge for being early, we are going to start exiting our high-flyers before the trend becomes totally clear, meaning soon.

But, beware,I am unsure how deep the drop will be and how long it will go on for. There are more warnings for paid subscribers below.

Because of the double dose of blogs in Thursday, you will not be given much news today. We have tidbits from Belgium, The Netherlands, Switzerland, Spain, Bermuda, Ireland, Britain, Germany, Israel, Japan, Canada, Colombia, Brazil, and Mexico.

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