The running of the honey badgers!

The running of the honey badgers!  The honey badger is also known as ratel and is notorious for its fierce, or ferocious (as Wikipedia labels it) defensive abilities.  Though the honey badger only exists in Africa, Asia, and on the Indian sub continent, it is well known by the internet generation, AKA your kids.  A now famous viral youtube video entitled “The Crazy Nastyass Honey Badger” features a comical narration overdubbing a real National Geographic video of an unstoppable honey badger who eats cobras, mice, and bee larva despite getting bitten, stung, and even passes out after a cobra bite. The narrator states that “nothing can stop a honey badger when he is hungry”.  The video spurred the “honey badger don’t care” meme, which became viral on youtube.  After several days of trading up, equity markets continued their upward march yesterday in which all indices except for the NASDAQ put in a positive session.  The NASDAQ was held back by Google which was slapped with a record $5 billion fine by the EU.  Google, despite the bad news, did not spend the entire session in the red.  It only retreated late in the session.  Hmmm.  Oh and Netflix, of Tuesday’s ire, also traded in the green for most of the session ultimately closing slightly down.  A trade war looms, though the full effect has not yet appeared in the economic numbers and equities trade up despite missing expectations.  A well respected, but administrative appointed, Fed chief seems intent on calling out the bulls laying praise on the economy despite the many well-known indicators that suggest an overheating in the mid-term future.  Many traders and analysts who have been around long enough to have experienced one or even two recession markets are left scratching their heads wondering if either the markets will catch up to reality or the reality will catch up to the markets.  The former would be better, but the more seasoned investment professionals remain skeptical.  Their skepticism however is not enough to keep the markets from trading up.  One gets the sense that we are late in a musical chairs game with very few chairs left.  The numbers look good, yes, but it is clear that the tax package has injected not only capital, but also investor (or voter) confidence in the system.  It is most likely responsible for extending this long-in-the-tooth economic expansion cycle beyond its natural life.  The question that remains is “when will the sugar rush end and give way to a contraction”.

To help put this in perspective I will refer to a chart which I have shared on a few occasions (see attached) that shows the lengths of all economic expansions the US economy has experienced since 1854.  The average cycle of growth, which is measured from the low or trough of a recession through the peak before the next recession, is 38 months.  We are currently in month 108 of the current expansion with only 1 ever exceeding this in duration.  Granted, we have had an unprecedented period of Fed accommodative policy, but it is still clear, based on the numbers that the music won’t continue to play on for too much longer.  Warren Buffett is famous for his quotes and perhaps one of his most famous quotes was (although this might not be verbatim) “sell greed and buy fear”.  Because those two emotions are ones that are typical of non-sophisticated investors it is thought that only the greedy will come in and buy just before a market peaks and vice versa they sell too late after all the smart money has already left.  One cannot help but recognize that there are many buyers that seem to be buying on greed and FOMO (another thing your kids will recognize as meaning Fear Of Missing Out).  To me the message is clear: diversification is the only way to safely remain invested here. Unless you are a honey badger and you don’t give a  <insert your favorite four-letter expletive here>. Please call me if you have any questions.

daily chartbook 2018-07-19

economic expansion lengths