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you said that what we're seeing right now reminds you of just a midlife crisis for the markets what do you mean well you know the bull markets ten years in duration so at this point it's natural for people think we're gonna have a bear market or a recession but a lot of bull markets that lasts this long actually turn out to be super long bull markets right 1950 to 72 was 22 years and then 74 to 2000 even if you do 80 to 2000 those are about 20 years which means at the midpoint the markets got this huge debate and I think that's why we had in 62 the Kennedy crash the market kind of pulled back big and in 87 we had the 87 crash which was exactly at the midpoint of that bull market and I think you know 2018 is another example I mean it's whatever happens this year is going to depend on whether or not economic fundamentals deteriorate or markets had overreacted even if you look at this as just a midlife crisis I think back to 1987 a lot more pain could be on the horizon even if you are talking about an extended bull market that you're not calling an end to any of the pain that we've seen uh that's right I mean the problem I think in December is that credit markets have continued to unravel right like high-yield has widened and I think there were a lot of funding pressures in the final days I mean so even the stock markets rally of the final days you know the the debt markets kind of went haywire last couple days but if this is MIT's midlife mid-cycle then you know long-term investors really got a hunker down because there's you know the market's going to be up much higher in the next ten years but if it's recession I mean we could have a deep bear market but I I don't think we're in the latter category yeah you mentioned the credit pressures that obviously those artificial or mechanical elements of that should be over yeah I mean effect new year you have banks and-and-and buy-side firms they have all full year's worth of performance and balance sheet to work with yeah so we got to watch the credit markets for response to that yeah the first week this first weeks to me critical because you know look part of the reason I think equities got sold so hard in December was it's the most liquid thing so if someone had fun pressures our balance sheet they were selling stocks and futures but if if this doesn't unravel and normalize in January then maybe there's something bigger so what would you tell people to do right now because that's kind of question everybody's asking is are we headed into a recession or not to me the biggest arbiter of business cycle is two points on the yo curve either the 10:1 which is still positively sloped or the 10:30 it's just positive we've had a weird inversion everywhere else and I think some of that is the bank funding pressures so I don't think there's a recession yet I mean in fact it has to invert in front of a recession but the second is look if if there's a lesson from 2018 it's that investors can't bet big and so I think everyone's gonna start this year really cautious betting small and either if sentiment gets overly negative it's gonna turn out to be a huge buying opportunity or you know things have to get really bad so I think it just means start small what do you what do you think happens here is this a situation where the market follows the economy or where market concerns actually bring on an even weaker economy you know the level of interconnectedness which I guess George Soros called reflexivity of financial markets the economy is much tighter today so is the financial markets movements is the economy right now so I think that's why the Fed really missed a big opportunity December because we've seen now an unraveling a credit market which is in response to the volatility in equity markets and and now the Fed will have to respond to that and if and the markets have already gone to the point of essentially pricing out Fed rate hikes for this year for 19 yes now you get to do that just because the stock market's down 15% my it's my sense that you really do need a growth scare you actually need other financial conditions to get a lot worse so it's great to say that playing chicken yeah with the Fed but it has to get a little scary before one veers off yeah we posted a chart in our last piece to our clients and it showed like basically stock market's priced in a recession like every recession trade is now working but as a fact financial conditions have tightened a lot high-yield has widened a lot so funding costs have changed which means it's now raising the bar for how companies spend money so I think there is real risk to the economy because of what happened in this summer you
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