Markets Are In Trouble

Markets go down sometimes and scare a lot of people but eventually, they make a new high. Stay disciplined.

A little over a year ago I posted that I thought a bear market had started and detailed the first steps I took to try to avoid the full brunt of what could have been a large decline. I detailed the subsequent trades I made to take a more defensive posture and then when I changed positioning to be less defensive. I've joked repeatedly about the number of times that the bear market called looked right, then wrong back and forth several times now raising concerns now it could be right again.

As I write this post the S&P 500 closed below its 200 day moving average for the first time in a while, the ten-year US Treasury Note yields 2.14% while the three month bill yields 2.35% (curve inversion) and markets are navigating through a tariff (imposed and threatened) minefield. Also of note, the S&P 500 has spent the vast majority of the last year and half below the high sent on January 22, 2018. I would describe that last one a "kinda sort of" an indicator of a bear market.

When the S&P 500 is below it's 200 day moving average it is an indication that there is a problem with demand for equities. The problem might be serious or it might not, that is yet to be seen, but a problem nonetheless. A curve inversion impedes access to borrowing money from the standpoint of banks borrowing short to lend long. When capital for expansion and development is cut off it inhibits growth which makes it recessionary. I should note plenty of people smarter than me do not buy into this and frankly, the logic is lost on me given the track record that curve inversions have for predicting recessions. An inversion is not automatically recessionary, it needs to persist for a while, cutting off access to capital, to be recessionary. You may find different takes on just how long it needs to be inverted but I would not want it to be longer than a month.

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