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Mar 14, 2019

Stock bear who predicted last recession says this is how investors can get ready for the next

Barbara Kollmeyer

“If there is going to be a selloff then it is the yanks who will do it.”
So says Simon Denham, chief risk officer at fintech firm TigerWit, commenting to clients a day after the S&P 500 took positive economic data and used it to fuel a run to the highest close since November, after months of being rebuffed at the 2,800 level.
Those with weak constitutions about this stock market are probably not stateside, says London-based Denham, who adds that he’s lost track of the times Wall Street looked destined for a gloomy session in the Europe and Asia market hours, only to have New York come in and reverse the situation. “Almost as if an American hatred of anyone else selling down the U.S.,” he observes.
By the looks of things, the S&P may be in for a battle to push higher, with trade headlines, weak China industrial data and extended Brexit chaos ganging up a bit on cheery New York traders. Or, speaking of gangs, will it be more a case of ”fuhgeddaboudit” and a chant of U-S-A, U-S.A.?
Less cheery is our call of the day, from David Rosenberg, the bearish chief economist and strategist at Gluskin Sheff who predicted the housing crisis and the last recession, and today sees another downturn around the corner. “I think that, no matter how you slice it or dice it, recession odds are on the rise,” he told MarketWatch in a recent interview.
"I can't see a recession!". "Where's the recession!". I can't tell you how much I hear this every single day. It's like saying "I can't smell the carbon monoxide." By the time you "see the recession", your head's sliced off. Such a ridiculous statement.
— David Rosenberg (@EconguyRosie) March 6, 2019
And this one will be all about debt, he told MarketWatch in a recent interview: “The 2008/09 recession was about household balance sheets and the banking system. This recession will be about corporate balance sheets, the necessity of deleveraging to avoid a downgrade/default wave, and the nonbanking system ... including the mountain of debt in private equity.”
He sees trouble ahead with $7 trillion or three-quarters of the corporate bond market being refinanced in the coming decade, bumping up against gross Treasury financing requirements of $2.5 trillion a year.
And then $3 trillion of investment-grade bonds are on the cusp of being downgraded to junk, he says, referring to a “sinister cycle of fallen angels, where triple-B companies will get pushed into junk-bond status and pension funds can’t buy your paper. CEOs and CFOs will be forced to respond by cutting back on capital spending requirements.”
He admits that most economists and market pundits are not in agreement and don’t see a slowdown coming this year. Rosenberg does not have a solid timeline on a recession, saying that it’s “more important to know it’s out there and how to get out of it considering all the fiscal and monetary bullets have been expanded from the chamber.”
Given stocks tend to fall 30% in a recession, investors have a choice to make right now, he says. Those who discount the gloom should be fully invested in this market, long on equities and scooping up the most cyclical stocks, which thrive in good economic times.
If not, Rosenberg advises keeping high-quality, long-duration bonds at one end and blue-chip dividend and growth in noncyclical parts of the stock market at the other, along with higher-than-normal cash levels.
Rosenberg has been bearish on stocks over the past 18 months, so he’s missed some gains, but he was bullish from 2012 to 2016.
The market
Dow YMH9, -0.22% , S&P 500 ESH9, -0.14% and Nasdaq NQH9, +0.01% futures are flat. Wednesday marked a four-month-best close for the S&P 500 SPX, +0.69% , with gains as well for the Dow DJIA, +0.58% and Nasdaq COMP, +0.69% .
The dollar DXY, +0.35% is firmer, with the pound GBPUSD, -0.8023% dropping after having hit a 9-month high once Parliament ruled out a no-deal Brexit. Commons will vote Thursday on whether to request an extension to the March 29 Brexit deadline. Gold GCJ9, -0.91% is down, and crude CLJ9, -0.33% is modestly up.
Europe stocks SXXP, +0.49% are moving higher, while Asia had a mixed day, with the Shanghai Composite SHCOMP, -1.20% dropping 1% after weaker-than-expected industrial output data.
The chart
Our chart of the day shows the hit that the net worth of Americans took last quarter — $4 trillion, bigger than what was seen in the recession years. The chart comes from’s Barry Ritholtz, and was shared by Schwab’s chief investment strategist, Liz Ann Sonders:
Net worth of Americans fell $4 trillion last quarter ... largest quarterly drop on record (in dollar terms) @ritholtz @JohnFMauldin
— Liz Ann Sonders (@LizAnnSonders) March 13, 2019
But, then, the number of U.S. millionaires was on the rise last year.
The buzz
An anticipated trade summit between Trump and China’s president, Xi Jinping, won’t happen until at least April, says a Bloomberg report, news that has taken some steam out of big indexes this morning.
Facebook’s FB, +0.84% data-sharing activities are being hashed out before a New York grand jury, with records subpoenaed from two hardware makers that the social-media group partnered with in data.
Where were you for the great #InstagramBlackout2019? After an agonizing few hours without the popular app, it was back up and running Wednesday evening. But parent Facebook’s eponymous network was still grappling with outages early Thursday. Shares are down this morning.
Tesla TSLA, +1.98% will roll out its long-awaited Model Y, a compact SUV, later Thursday, which could be a “game changer” for the electric-car maker, with potentially “massive demand,” Wedbush analyst Dan Ives told clients.
Opioid maker Insys Therapeutics INSY, -25.18% is dropping after the company said an auditor had raised doubts over its viability.
Wells Fargo WFC, +0.54% CEO Timothy Sloan got a $1 million pay rise last year, bringing his total compensation to $18.4 million. That revelation comes a day after he and the scandal-plagued bank came under fire at a Capitol Hill hearing.
The quote
“This is a defining moment of truth for this country and for every single one of us.” — That’s former Texas congressman Beto O’Rourke officially announcing his entry to the 2020 U.S. presidential race on Thursday in a video, with his wife at his side. The cat appeared to be out of the bag a day earlier when he appeared to confirm in a text message the reports that he would run.
The economy
Weekly jobless claims, import prices and retail sales are on tap for Wednesday, along with new-home sales and business inventories.
The stat
25,568%: That’s how much the Dow has gained since 1916, but it has made all-time highs on less than 5% of those days. That’s according to Irrelevant Investor’s Michael Batnick, whose 20 crazy investing facts is going a bit viral.

Random reads
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A snub to the U.S. after its delay in taking regulatory action on the Boeing 737 Max 8? France will examine the black boxes from the crashed Ethiopian jetliner
Twitter thread on why U.S.-style college bribery scandal would never happen in ... China
And wealthy parents caught up in that cheating scandal could be in big trouble with the IRS, too
Head of Gambino crime family gunned down, the first New York mob boss to be killed since 1985

Source: MarketWatch

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