The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

On The Other Hand . . .


One of my favorite thought-leaders is Bob Doll of Nuveen.  He has written six reasons for optimism in 2019 and six reasons for pessimism in 2019.  The six reasons he is optimistic are as follows, with my thoughts in parenthesis:

1.  The economy may be slowing but doesn’t appear headed for recession (Agreed)
2.  Likewise, earnings growth is slowing but should remain positive for 2019 (Probably)
3.  Equity valuation levels are quite a bit more attractive than they were a year ago (It depends)
4.  The Fed is backing off its tightening campaign and is more dovish (So far, so good)
5.  The equity market decline has not been based on deteriorating fundamentals but more on limited liquidity (True)
6.  The corporate sector remains healthy, with buybacks and dividend increases looking strong (Maybe, but corporate debt is too high)

The six reasons he is pessimistic are as follows:

1.  Global growth is slowing and unbalanced (Very unbalanced – emerging markets look much better than developed markets)
2.  High levels of corporate activity from late 2018 may have been “borrowed” from 2019 in anticipation of more tariffs (Probably)
3.  The earnings backdrop looks highly uncertain (Maybe uncertain, but not HIGHLY uncertain.)
4.  Political and economic uncertainty could put a lid on valuations (Absolutely!  The 800-pound gorilla is impeachment, which is certain)
5.  Trade issues are a huge wildcard and far from resolved (Let us pray!)
6.  The rising deficit and debt ceiling battles could become an issue in 2019 (This is HUGE!  If we shut down the government because we cannot agree on some $5 billion wall, how are we going to raise the debt ceiling and protect our credit rating?  The rising deficit must be dealt with but will probably get kicked down the road again, unfortunately.)

Physical trainers will tell you that “no amount of exercise will overcome a bad diet.”
Likewise, no amount of good economic news will overcome a dysfunctional democracy.


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