U.S. Markets closed

Why the crisis of 2019 begins now

Source: Flickr
Source: Flickr

By Yves Lamoureux, president and chief behavioral strategist of macroeconomic research firm Lamoureux & Co.

The crisis of 2019 begins now. However, our very long-term bull stance remains, as we consider this of an intermediate term nature, which we promised earlier we would quantify.

At each turn so far, the market has underestimated the Trump win and its consequences of protectionism, something we have expected for well over a year in our discourses.

The Trump trade, which has nothing to do with reflation, had to do with players busily covering massive short bets taken prior to the election. And what’s the bond reaction? In real terms, the US 10-year yield has turned up since late 2012 (see our previous calls).

Consider also that each job gain in the US will be at the expense of one lost globally. In financial terms, it is a non-zero-sum game.

Accordingly, the narrative does not add up!

What we discuss today is set in stone because of how the global banking system is designed—as a fractional system. In future articles, we will discuss our proprietary liquidity model. But do know that it turns down this week on January 25.

Impacts may be felt immediately for some markets and later on for others. In that respect it will be interesting to discover this process at hand and how one is able to express a viewpoint based on this information.

Precious metals are a prime example.

Our work and opinions are of a tactical view of the fluctuations in the credit multiplier. We argue that we have come to a juncture where constant monetary growth is inadequate to support asset prices.

The Catch-22 remains in another round of quantitative easing.

If the Fed decides to buy more bonds, it risks pushing rates even higher than now. After the Fed did so previously, bonds dropped in price as yields soared.

Stocks also moved up, as bonds were sold to the Fed. In effect, the Fed is only substituting itself for another holder. In this next episode of QE bond purchases, however, they will not be sterilized as before. And it furthers our stance that they would need to buy stocks. So stock bulls, listen up!

This week, we show when stocks have historically bottomed with a new president. We like to layer non-correlated evidence to solidify one message, which then agrees with our behavioral model.

A sample of our work

Year where stocks bottom after a new US president takes office

1949-1952

1

1953-1956

1

1957-1960

1

1961-1964

2

1965-1968

2

1969-1972

2

1973-1976

2

1977-1980

2

1981-1984

2

1985-1988

3

1989-1992

2

1993-1996

2

1997-2000

2

2001-2004

2

2005-2008

1

2009-2012

1

2013-2016

3

2017-2020

?

Our calculation reveals a historic behavior for stocks to bottom in the second year of the new mandate. Precisely, it is about 1.84 years.

And as ultra-bulls on stocks for years now we say this: Stocks will likely bottom in 2018 to early 2019.

By Yves Lamoureux, January 16, 2017 ©Copyright, Lamoureux & Co.

This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product or service.This publication is proprietary and is intended for the use of the subscriber only. All information provided is impersonal and not tailored to the needs of any person, entity or group or persons. Lamoureux & Co. shall not be liable for any claims.