This IsWhen the Next Recession Begins
Don’t believe the hype or scary headlines. The stock market won’t collapse simply because journalists are calling for a bear market, regardless of how many random, poorly calculated data points they try to use. Instead, rely on signals that drive the forecast and have for centuries... regardless of how boring that might be or how few ads that might sell. The U.S. stock market is experiencing new market highs because credit and earnings cycles support it. They will continue to do so for another year and more, and the market will continue to rise until the right signals say otherwise. The stock market won’t collapse simply because journalists are calling for a bear market, regardless of how many random, poorly calculated data points they try to use.
Without the sorts of debt-maturity headwalls that we see beginning in 2021, there’s very little risk of a stock market collapse before then. The rise in the cost to borrow in 2018 has completely reversed itself. Thanks to the Fed cutting rates and CDS levels moderating, cost to borrow is roughly in line with what it was in 2014 through 2017, when the refinancing market was strong. We already know that the risk of a recession in 2020 is much lower than many on Wall Street are claiming, just by understanding how debt maturity headwalls look. But we also can get new confidence about how 2021 looks for the U.S. and global economy, by understanding how important the refinancing market is to economic growth. The fact is that traditional, as-reported means of looking at credit and equity will not provide a suitable model for understanding where we are in the bull and bear cycle. So while the stock market has run a lot, it still has strong legs to continue running. Professor Joel Litman is the chief investment strategist at Altimetry. There, he’s focused on helping individual investors make sense out of accounting standards that obscure a company’s true earnings. In other words, he helps investors get it right when Wall Street gets it wrong by using a team of 90 accountants and analysts who sift through more than 8,000 publicly traded companies around the world.
We published a cover story on Joel in our September magazine, and were so impressed
with his work that we invited him to contribute an article this month. If
you’re interested in reading more from Joel, he publishes a free daily letter called the Altimetry Daily Authority. You can learn more by clicking here .
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December 2019
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