Doug Kass’ 15 Surprises For 2018: FANG Crackdown, Gold All-Time-Highs, Stocks Slump
Doug Kass of Seabreeze Partners Management,
ZeroHedge.com
Dec 19, 2017
“The missing step in the standard Keynesian theory [is] the explicit consideration of capitalist finance within a cyclical and speculative context . . . finance sets the pace for the economy. As recovery approaches full employment . . . soothsayers will proclaim that the business cycle has been banished [and] debts can be taken on . . . But in truth neither the boom, nor the debt deflation… and certainly not a recovery can go on forever. Each state nurtures forces that lead to its own destruction. ”
–Hyman Minsky, John Maynard Keynes
Contrary to the expectations of many (including myself), the uncertainty following the surprising Trump presidential election victory, which produced a number of possible outcomes (some of them adverse), was enthusiastically embraced by investors in 2017.
After a year of historically low volatility and ever-rising stock prices, the bullish consensus was “in” and the contrary was “out” in 2017.
But after the Trump election win in late 2016, a market on steroids was not a conclusion or forecast by any main stream Wall Street forecaster. There was no sell side strategist on Wall Street who expected equities would rise anywhere near the 20%-plus gains in the major indices recorded thus far in 2017, nor do I know any who predicted that the senior average would make 70 individual highs during the year.
The biggest surprise in 2018 may be that extrapolation of the market uptrend doesn’t work after many years of working, and that we will witness the emergence of multiple non-consensus developments, including a dramatic drop in the price of bitcoin (to under $2,000) and a devastating decline in many bitcoin collateral plays, a much higher oil price, a slowing (not expanding) rate of economic domestic growth as the tax bill “trickles up,” not down, disappointing 2018 S&P earnings relative to consensus, a mean reversion higher in volatility and the bursting of the global short volatility bubble, which serves up a 20% drop in equities (aided by both weaker earnings results and lower valuations).
And, of course, there are many more surprises in the fertile political arena with the incalculable Orange Swan at the helm in Washington, D.C., and in his role as the “Supreme Tweeter.”
As we enter the new year, the scent of “Group Stink” is thicker than ever as the uncertainties that nearly everyone saw as we entered 2017 have been replaced with acceptance and assuagement now. Indeed, it can be observed (or argued) that we end 2017 with a full-out Bull Market in Complacency in which the leading strategists, fooled last year, are extrapolating past investment market strength in the anticipation of another 7% or so advance in 2018.
Warren Buffett once observed that a bull market “is like sex. It feels best just before it ends.'”
While some of us in the ursine crowd debate whether the investment orgasm has already passed, in the extreme it finally may be Minsky’s Moment and year after eight years of recovery and prosperity following The Great Recession.
Here are my 15 Surprises for 2018, I hope you enjoy the read:
Surprise #1: President Trump’s Behavior Finally Does Matter
The Rest…HERE
