BOMBS Away: Trump Pulls No PUNCHES

Dear Reader,

When enough is enough, decisive action is taken. In response to the New Years’ attack on the U.S. Embassy by Iran, it has been reported that a powerful Iranian general has been killed by the Pentagon at the order of Trump. This is news that is just breaking, and the retaliation from Iran that will come is still unknown. My instinct says that if another country killed U.S. General Mattis, some serious repercussions would be soon to follow.

There’s no doubt that the drums of war are stirring up the gold price, with oil spiking as well. Stocks are down on Friday as we see some knee-jerk reactions to the news out of the Middle East. The year starting out with a bang is certainly nothing short of what will be another defining moment for the Trump campaign, depending on how this plays out.

Does it mean anything for the stock market, you might ask? The likely answer is no, considering stocks are in such a blind, overall bull run.

It’s hard to deny that a whole lot of investors had a solid 2019. This is emblematic of what I call the “Teflon market”: no bad news seems to stick.

Up 29% in 2019, the S&P 500 had its best year since 2013.

The NASDAQ gained 35% and the Dow Jones was up 22%, indicating that the tech-dominated “high flyers” flew the highest. It was a year when risk-on morphed into risk-indifferent.

What’s even more mindboggling is that in the face of a strong bull market in stocks, safe-haven assets did well.

Gold had an impressive year, up 19% for its best year since 2010.

It was the expression of an ongoing “everything bubble” driven by endless economic expansion.

I’m not just talking about the U.S., either, as the People’s Bank of China is employing the same tactics to perpetuate its own expansion.

By September, the country’s central bank lowered Chinese banks’ reserve requirement (the amount of cash that banks must hold as reserves) for the third time in 2019, thereby releasing 900 billion yuan ($126.35 billion) in liquidity to prop up China’s limping economy. This policy will continue on January 6^th because the PBoC will cut banks’ reserve requirement ratio by another 50 basis points, releasing an additional 800 billion yuan ($114.91 billion) into the Chinese economy.

Of course, China isn’t alone. In “emergency” repo operations, the U.S. Federal Reserve is infusing $100 billion each and every month into the American banking system. As a result, the American stock market has completely ignored the impeachment proceedings and the usual tax-loss selling simply didn’t happen because stocks were up so much by the year’s end.

S&P 500 Index 2019

Despite China’s efforts to the contrary, the U.S. had the best-performing stock market in 2019 – an undeniable sign that the market “likes Trump.” Say what you want about the underlying economic conditions, but the Teflon market clearly approves of the president and wants to maintain the ultra-accommodative fiscal policy that’s currently in place. 

It’s hard to imagine people betting against this rally, but not everyone is diving head-first into the equity markets. The kingpin of the investing world, Warren Buffett, isn’t buying this rally; in fact, he’s largely sitting on the sidelines with $120 billion on the side waiting to be deployed. Does he have some secret “insider information” or is this just part of his successful investing strategy?

I’ll put it to you this way: the last time we saw something similar to this was in 2007, which preceded the great credit crisis/Great Recession. Like a patient batter who doesn’t feel the need to swing at every ball that’s thrown, Buffett only swings at the perfect setups: the slow and easy ones served right down the middle that he can completely obliterate.

Through his investing behavior (which says a lot more than words ever could), Buffett doesn’t see a perfect setup in the current market. Indeed, it appears that he’s waiting for lower asset prices, which could be coming sooner than people think – and remember that many times, we don’t know we’re in a recession until we look back and realize, too late, that things have topped out and aren’t recovering.

2020 is already turning out to be a very excited year and we are barely still coming out of what is still a vacation week.

Be on the lookout for my first actionable investment idea of 2020. I’m putting on the finishing touches for my coverage on this company, which you will read about on Sunday!

It’s hard to believe that we’ve rounded the corner of not only a brand-new year, but a new decade. Keep in mind that many people overestimate what they can do in a year, but they underestimate what they can do in a decade.

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