What Will Cause the Next US Recession?

Source: Delong/Project Syndicate

“Three of the last four US recessions stemmed from unforeseen shocks in financial markets. Most likely, the next downturn will be no different: the revelation of some underlying weakness will trigger a retrenchment of investment, and the government will fail to pursue counter-cyclical fiscal policy….The next recession most likely will not be due to a sudden shift by the Fed from a growth-nurturing to an inflation-fighting policy. Given that visible inflationary pressures probably will not build up by much over the next half-decade, it is more likely that something else will trigger the next downturn. Specifically, the culprit will probably be a sudden, sharp ‘flight to safety’ following the revelation of a fundamental weakness in financial markets….If a recession comes anytime soon, the US government will not have the tools to fight it. The White House and Congress will once again prove inept at deploying fiscal policy as a counter-cyclical stabilizer; and the Fed will not have enough room to provide adequate stimulus through interest-rate cuts. As for more unconventional policies, the Fed most likely will not have the nerve, let alone the power, to pursue such measures. As a result, for the first time in a decade, Americans and investors cannot rule out a downturn. At a minimum, they must prepare for the possibility of a deep and prolonged recession, which could arrive whenever the next financial shock comes.”

 

Wall Street names these marijuana stocks as the big winners for 2019

Source: Pot Network

“Vivien Azer, senior research analyst at Cowen, released a set of bullish predictions for a slew of marijuana stocks for 2019. In a note to investors she wrote that the long-term global cannabis market could be worth up to $500 billion over the next decade, stressing on the performance of three key companies. Tilray, Canopy Growth, and KushCo Holdings… for their growth potential in 2019…New products and the possibility of new markets in the United States are all contributing to Azer’s prediction, which is $5 billion more than previously estimated. And Cowen’s top three picks are predicted to benefit the most from this growth…KushCo seeks organic growth through consumer relationships…Out of the three companies… KushCo Holdings is the only one to deliver triple-digit revenue four years in a row…The company also posted $25.3 million in revenue this first quarter for 2019, a new company record that represents a 186 percent increase over last year’s revenue…Their supply agreements with new clients and new custom packaging projects, through their subsidiary Koleto Packaging Solutions, include nearly a dozen patents so far for cannabis packing and storage…Tilray is poised for some significant growth through their medical partnerships and the potential of new American markets, but their significance is shrouded in doubt as investors wait for the company’s IPO to expire in less than a week…The signature rise and fall of Tilray’s stock is due in no small part to its low stock float of around ten million shares…The optimistic predictions of Tilray’s ability to seize their share of the market in 2019 could sway shareholder’s minds on January 15, but investors should brace themselves for a rocky rest of the month…Canopy Growth Corporation holds about eighteen percent of Canada’s medical and recreational markets. Despite posting their biggest losses in three years, Canopy remains the market leader in Canada…Their market potential to “outperform” in this calendar year is high…And with their supply agreements and latest research investments, Canopy will most likely see a more positive upturn this fiscal year over last year’s numbers.”

 

Return Of The Bull Or Dead Cat Bounce?

Source: Zero Hedge

“If you listen to the media, the shocking and totally unexpected downturn last was unable to be foreseen by anyone. Thankfully, it’s now over and we can get back to the roaring bull market. Or can we?….The decline from ‘all-time’ highs took many of the persistently bullish commentators by surprise. However, the topping process began long before October and the market was sending a clear warning that something was amiss….It isn’t just the extraction of liquidity from the markets which will likely weigh on the markets over the course of the next year. Global economic growth continues to weaken, ‘Trade Wars’ and ‘Tariffs’ are still a threat, Valuations remain elevated, Interest rates are still rising and Debt loads remain extremely high….I want to reiterate that portfolio management processes have now been switched from ‘buying dips’ to ‘selling rallies’ until the technical backdrop changes….There remains an ongoing bullish bias which continues to cling to belief this is ‘just a correction’ in an ongoing bull market. However, there are ample indications, as stated, the decade long bull market has come to its inevitable conclusion.”

 

Automation will be the end of banks as we know them  

Source: TechCrunch

“The unbundling of the bank has begun. Just 10 years ago, the average consumer had very few financial relationships and interacted with just one or two institutions to fulfill all of their financial needs. But fintech companies are breaking up the old guard by focusing on specific things that banks have done and simply doing them better. The fintech revolution started after the 2008 financial crisis, and was driven largely out of frustration with the existing establishment. Facing heavy scrutiny, banks pulled back dramatically on a lot of their activities to reduce risk, which left a significant gap in the marketplace. Fintech companies stepped in and brought new ideas to an industry that had seriously lacked innovation. The established banks are focused on copying the best of what fintech has to offer. They’re moving slowly and are a solid five years behind, but their goal is to provide a just-good-enough mobile experience to ensure their customers stay with them….The next 20 years are going to be defined by the way automation transforms the average person’s life….This is a nightmare scenario for banks: Once automation reduces enough friction in the financial industry, banks lose their relationships with customers….Those that fail to recognize the changing technological landscape run the risk of losing their market share and their position in the marketplace.”

 

Gold rises as Fed shift hopes hurt dollar

Source: Reuters

“Gold rose and palladium hit a record high on Monday as the dollar was dented by expectations that the U.S. Federal Reserve would halt its rate-hiking cycle for the year, lifting demand for the metals from holders of other currencies. ‘The precious metals complex is fairly well supported given the loose monetary turn coming out of the Fed,’ ING analyst Warren Patterson said. Fed Chairman Jerome Powell on Friday said the central bank would be more sensitive to downside risks in the market, adding that it was ‘prepared to shift the stance of policy’ if needed. Gold tends to gain when interest rate hike expectations ease….The dollar weakened on growing bets the Fed would pause its rate hike cycle in the coming months after Friday’s comments from Chairman Jerome Powell. ‘We are seeing buyers returning to the (gold) market on dips,’ said Saxo Bank analyst Ole Hansen, adding that the dollar weakness supported prices.”

 

Stock-market investors, it’s time to hear the ugly truth

Source: Henrich/Marketwatch

“The Federal Reserve is propping up the market – and here’s the evidence. For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch….When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018. And don’t think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained ‘accommodative’ and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets….The Fed likes to claim it is managing policy based on the economy, not on markets. But here’s the ugly truth on that: The economy these days is very much tied to market performance. Big drops in markets have an adverse impact on the economy, full stop. Hence, it is a fallacy to argue that one looks at one but not the other….Recognizing the market’s newfound sensitivity to QT, the Fed was sure to react….So don’t mistake this rally for anything but for what it really is: Central banks again coming to the rescue of stressed markets.”

 

BlackRock Heaps Praise on Gold’s Role as a Tough Year Opens

Source: Bloomberg

“Gold may extend gains as global growth slows, equity market volatility remains elevated and the Federal Reserve is expected to ease back on the pace of policy tightening this year, according to a BlackRock Inc. money manager, who says the precious metal offers an effective hedge….’I do think we’re experiencing a slowdown,’ Russ Koesterich, portfolio manager at the $60 billion BlackRock Global Allocation Fund, said in an interview, citing decelerations in the U.S., China and Europe….’We’re constructive on gold,’ Koesterich said in the phone interview on Friday. ‘We think it’s going to be a valuable portfolio hedge. We’re multi-asset investors: we think about its effect on the entire portfolio, and what we see value in right now is gold’s value as a diversifier.’….With the dollar and interest rates expected to be range bound, this could be bullish for gold, according to Koesterich….’The relationship between uncertainty, volatility and gold’s relative performance, it’s something that’s worth watching. It has been a store of value for a very long time, and again, it has had a very consistent record of helping mitigate equity risk when volatility is rising.'”

 

 

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