Submitted by Taps Coogan on the 13th of September 2018 to The Sounding Line.
The US in the midst of the longest bull market in American history. GDP growth is above its long term average. Small business sentiment is the best on record. After the longest period of continuous jobs growth in nearly a century, unemployment is at its lowest level in two generations. Food stamp enrollment is at its lowest level in eight years. The Federal Reserve is normalizing monetary policy by raising interest rates and reducing its balance sheet. The Dow Jones Industrial Average is up over 5% year-to-date and the S&P 500 is up over 9%. Both indices have posted positive yearly returns for eight out of the past nine years, with the exception being a minor decline in 2015. Corporate earnings have reached an all-time record high. Banks still have trillions of dollars of excess reserves. The US dollar has strengthened and its usage in allocated global currency reserves has risen to its highest level in 20 years.
Not for everyone and not equitably, but if there is such a thing as economic ‘good times,’ these are they. All of this, despite tightening financial liquidity, slowing growth and a bear market in China, brewing trade tensions, negligible growth in Europe and Japan, swelling federal government deficits, a brewing currency crisis in several emerging markets, and the perception of domestic political turmoil. One can see the storm clouds gathering on the horizon.
We all know that good times don’t last forever. The question is: how long can they last for? In the search for a useful analogue, parallels are being drawn between virtually every period in American history. Some have argued that this era is most reminiscent of the 1920s. Ray Dalio makes a compelling case for the late 1930s. Peter Schiff has long argued that the 1970s are a useful analogue. Art Cashin has compared today’s volatility to to that of 1987. Others have argued that today is more like the late 1990s Asian Currency Crisis. Or is it 2000? Chris Martenson prefers 2008.
The truth is that useful parallels can be drawn with virtually every economic cycle because they all share similar attributes: excess liquidity leading to asset bubbles followed by constricting liquidity which reaches some always-hard-to-forecast critical level, popping the bubble. The US is now somewhere in that constricting phase. While various analysts point to different economic cycles in American history, they all point to the same period in those cycles: the part within a year or two of the bubble popping. While they may all be wrong (it happens), history is on their side. Tightening cycles virtually always end in recession, usually within a handful of years. So while times are looking good, and there will inevitably be a certain momentum to that fact, there is no better time to contemplate what has always come next: not good times.
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