The Market View from the Window

I love television. Not because of the shows or because I watch a lot, but because I can turnrn it off.

I don’t think twice about watching 15 or 20 minutes of a show, and then turnrning it off and moving on to something else. I do the same thing with CNBC, which I typically have on during the trading day.

When I’ve heard (or seen, if I have the sound off) the umpteenth person come on and tell me why the Fed/U.S. dollar/markets/Congress/China will or won’t do something, I have the power to simply shut them all out.

It’s like the world’s best window…

Whenever I want, I can simply pull down the sash and boom! It’s out of my life. This can be wildly gratifying, allowing me the mental freedom to take an afternrnoon off or simply focus on other tasks.

But unlike tuning out an old movie or a sitcom rerun, when it comes to the markets, turnrning off the television or ignoring my quote system doesn’t end the madness. I might get a reprieve from the latest talking head, but the action still takes place.

Just like a window in my house, I can close the blinds and ignore the rain or sun, but when I finally venture outdoors it’s still going to be hot or wet. And I’m better off if I know the weather before I go outside.

So, for better or worse, I keep my window on the markets open, at least a bit, and try to see past the distractions.

The storm on the horizon…

Right now, it looks like clear weather in the short-term, but there is definitely a storm system headed our way.

Over the next several weeks, U.S. companies will report fourth-quarter earnrnings. The numbers should be great, up 20% or more over the fourth quarter of 2017. The question mark surrounds guidance.

Will companies be cautious in the views of the future?

Analysts have been busy marking down their forward estimates, dropping their 2019 guidance from 10%-plus to maybe 6.5%.

I think that’s a bit disingenuous.

The 2018 tax cuts weren’t a one-time thing. They were permanent, so they give companies more free cash to invest, use for R&D, or to send back to investors through buybacks and dividends. Earnrnings will probably grow at half the rate of 2018, but that’s still 10%.

We should also get some resolution on the trade war.

This battle has lasted for more than six months and is hurting a lot of U.S. interests. Granted, it’s taking a greater toll on the Chinese, which is fabulous. I’d love to see them capitulate on the big issues of market access, tariffs, and intellectual property. Any compromise will be more than we had before the trade war started.

And then there’s the governrnment shutdown. It’s hard to see how President Trump will let federal workers miss two paychecks. Whether the two sides reach a deal, or he uses emergency powers, we’ll likely see the shutdown end before the calendar rolls to February.

Finally, the Fed has capitulated…

Fed Chair Powell has declared the central bank to be data dependent, which is the equivalent of saying, “If the markets dip, we’ll step away from rate hikes.”

Taken together, these elements could drive the markets higher in the short-term. But the good times won’t last. The storm is out there… and moving our way.

Chinese economic growth is slowing, with officials now expecting GDP to increase 6% or so. Of course, that’s a fantasy number. Private estimates put the Middle Kingdom’s growth closer to 1%, which is supported by millions of empty homes and debt bursting at the seams.

The Chinese might be able to borrow and spend for a little while longer, but eventually their economy will contract, and it will be painful. China is now the second largest economy on the planet even though it’s still classified as a developing nation.

Here at home, GDP growth has eased back to the mid 2% range, just as we expected. That’s not going to kill our economy, but it will make investors think twice about how far stocks can run ahead of economic growth.

While the Fed has raised the data-dependency flag, it’s still reducing its balance sheet by $50 billion per month, which isn’t chump change.

Add to those economic headwinds the political fights coming out of Washington for the next two years, and you’ve got a recipe for an ugly downturnrn in the markets, if not an outright disaster.

Look through the Dark Window…

This makes it hard to decide between anticipating growth or preparing for a fall. Harry recently shared with you his idea of the “Dark Window,” the 90-year cycle which we’ll of course follow in our flagship publication, Boom & Bust, for the next several months.

But if you’re struggling with how to proceed and want more, check out Lee Lowell’s Instant Income Alert. He uses a great strategy that pays you cash, with the worst outcome being that you’ll own great stocks at cheap levels.

As we face a bit of sunshine ahead of what could be a major storm, this approach can give you peace of mind while still lining your pockets.

Rodney

Rodney Johnson

Rodney’s investment focus tends to be geared towards trends that have great disruptive potential but are only beginning to catch on to main-stream adapters. Trends that are likely to experience tipping points in the next 5 years. His work with Harry Dent – studying how people spend their money as they go through predictable stages of life and how that spending drives our economy – helps he and his subscribers to invest successfully in any market.