I’ve been waiting for the next significant market decline for longer than I can remember. As an adult working in financial services, I’m now into my 5^th decade of paying attention to global economic trends. I like to think I understand at least some of the dynamics that define investments.

The last bear market ended on March 29, 2009. While I did say to myself at the time that the downturn had ended, I’ve been wrong ever since.

One result of this is my personal investments and those of my friends and clients who used to rely on my instincts, if not my intellect, have not done as well as the markets in general.

Those with no personal experience of a market crash have little idea how market crashes strangle you mentally. That usually translates to financial pain. You’re damned if you do and damned if you don’t.

A new variable entered the picture in the last 24 months. Specifically, the efforts by this administration to right some perceived wrongs and an attempt to repeal history. This was done by introducing tariffs, something which most economists see as a profound mistake. Too many data points show global economic growth is attributable to free trade between nations.

And then there’s the tax bill signed into law in 2017. It was marketed as a way to  lower taxes on you and me so we could spend more money and grow the economy. It hasn’t played out that way. In general, it’s allowed corporate America to use cash infusions resulting from lower taxes to buy back stocks issued originally to raise capital. They use it for other stuff too, but there’s a huge incentive by management to allocate some of that cash the reduce the number of shares out there in the markets.

Since top management often gets paid based on the price of shares, reducing the number of shares outstanding effectively causes share prices to rise. This means bigger bonuses to those top managers. Great, unless you’re not one of those people.

Since the general public thinks there’s a 100% correlation between what the stock market is doing and how the economy is doing, too many people see the 10 year increase in the DOW and S&P 500 as being affirmation that the economy is GREAT.

However, sooner or later reality will once again rear it’s ugly head. During this ten year span, we’ve had some relatively minor scares, but nothing long term.

Going back to the trade war theme, another reason for the long term gains in the markets has been what some have called the ‘mutually dependent relationship’ between the US and China. We buy their goods and they buy our debt. The self-imposed tariff war puts that dynamic at risk and is now creating mental havoc among money managers.

Meanwhile, wages in the US have now been more or less stagnant for over four decades. During this span, the costs of education and health care have dramatically increased. We now have a huge drag on the economy in the form of student debt and increasing wealth inequality.

The Federal Reserve is now talking about lowering interest rates. Frankly, they can’t lower them much since in historical terms, they are very close to zero already. If they do, some now speculate it will hasten the inevitable decline in the economy and the markets.

Famous pundits are predicting there is much more upside possible and that if you’re not fully invested in the stock market, you’re going to miss huge gains. Personally, I think that’s nonsense, but who am I to comment. As already stated, I’ve now been wrong for the past 5 or 6 years.

The gains we’ve experienced over the past quarter-century will, at some point, be followed by a drawn-out bear market, with stocks, bonds, credit and property values all at risk. If that makes me a party pooper, so be it.

Tony Kendzior \ July 30, 2019