The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Dying Of Old Age

10/09/2018

Most people hope to get old and die of natural causes, and most people do!  Bull markets don’t have that hope of a pleasant passage.  Bull markets never die of old age.  Like animals in nature, they get killed – by several different causes.  The most common is the Federal Reserve raising interest rates too much or too quickly or both.  Trade wars also have a terrible track record of killing bulls.  (Remember the Smoot-Hawley Act of 1930 setting off the Great Depression?)  Wars on the other hand, after the initial shock, often help the bulls for awhile but eventually kills them later.  Of course, the most vicious killer of bulls is a financial crisis, like we experienced in 2008.

Not all recessions cause a financial crisis, but every financial crisis has caused a recession.

As I have said repeatedly, the economic data is currently rosy as far as the eye can see.  Non-economic issues to watch are (1) what the Fed will do or (2) how bad will the Chinese trade war be or (3) what is Kim Jung-Un doing anyway?

I spend most of my time looking for evidence, not of a recession, but of a financial crisis.  So far, it still looks safe.  Unwinding the Dodd-Frank Act poses a risk and so does the rapid, albeit not explosive, growth of Collateralized Loan Obligations or CLOs.  It bears watching but way premature to put a finger on the SELL button yet!

Just be grateful you are not a bull market!

CONTACT BAY CAPITAL ADVISORSWe Will Respond Promptly