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We all know about the news last week and how stocks suffered. What we don’t know is if the “very real chance of a Spring Crash” is underway.
For weeks, I have been arguing that a storm was building in what has ended up becoming a highly popular interview on Real Vision (https://www.youtube.com/watch?v=MyDhLs3tmSc&t=380s). The most notable warning of a high-risk period is the divergence of Lumber from the S&P 500. Lumber matters because of its link to housing. Lumber, however, wasn’t the only thing I referenced. While the S&P 500 was pushing towards all-time highs, small-caps were nowhere near the peak of last year, and yields refused to rise in a meaningful way following the December lows.
On Twitter, several started coming around to the idea that my time frame for a high-risk period mid-May may actually come true because of the way trade talks were going. I couldn’t help myself and decided to have some fun with the obsession over trade talks by modifying a song I’ve written to tailor the imagery to the news of the moment which personally I think is hilarious (https://twitter.com/pensionpartners/status/1127193185455886337).
Why the obsession? Because this is the only thing the news is focused on. I don’t believe a decline is going to be due to China and trade wars. I think something else is happening here which could result in a meaningful breakdown in equities even if a trade deal gets done.
None of the above has anything to do with China. Lumber is telling you about housing. Small-cap weakness is telling you about consumer trouble. And the sentiment is telling you to be contrarian. Something on the domestic front is happening given intermarket trends despite headlines over China making it seem like “that” is the catalyst. My belief is that China is a distraction to bigger underlying divergences that are unrelated.
Our internal signals used in the management of our mutual fund and separate account strategies are starting to confirm that the storm that’s been building for weeks may finally be here just in time for the mid-May juncture I mentioned on Real Vision. Whether the accident happens or not remains to be seen. All I know is that the weather has changed, and it’s time to slow down entering the storm and prepare for defensive actions. Any potential trade deal more than likely in my opinion won’t mean the rain has stopped.
This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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