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One nuclear threat reduced but is a market ‘nuclear’ threat looming?

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The US stock market seems to be be calmed, with the Donald Trump/Kim Jong-un ‘denuclearisation’ pact not getting a convincing thumbs up from Wall Street. From the outset of the Trump announcement that we’d see “peace in our time”  (he didn’t say this but that’s what we hoped it meant), the doubters were lined up ready to pounce.

The standout criticism was and is for markets this morning that the details about how North Korea will get rid of its nuclear arsenal were not convincing.

As a consequence, the Dow was slightly down but if the deal had brought a resounding “good on you Donald, you are the man” response, I’m sure Wall Street would have been much higher. On the other hand, the absence of a big negative reaction is better than the opposite.

We should be grateful for small mercies, given Donald and Kim’s potential personalities. Frankly, I’m more nervous about one revelation/warning that isn’t easy to ignore. This came from a legend of the market, Ray Dalio, founder of Bridgewater Associates, who said 2019 would be a dangerous year.

“We are bearish on financial assets as the U.S. economy progresses toward the late cycle, liquidity has been removed, and the markets are pricing in a continuation of recent conditions despite the changing backdrop,” the Bridgewater team have told their clients.

Now, Ray admits that he has made mistakes before. In 1982, his cockiness and self-belief saw him lose a fortune. However, he believes that since then his systems are better and his performance has meant that he now has $160 billion under management.

So when he gets worried you can’t ignore him, but he is a hedge fund manager and you can never be totally convinced by someone like him when it comes to public revelations.

I’m not saying that he (or any other influential fund manager) places a big bet and then informs the market to help their bet pay off, but you can’t rule out that some people might do exactly that.

All this is happening as the stock market doesn’t seem to be going anywhere, but I do think that the next reporting season in the USA, supported by good economic data, will be the next reason Wall Street goes higher.

However, the naysayers are looking for reasons to be negative, and Ray joining this group means I can’t ignore this development.

But wait, there’s more. And it’s more positive!

Another legendary hedge fund manager, with a legend’s name — Paul Tudor Jones — has a take on stocks that keeps me long and in the game.

This is what he told CNBC overnight: “I don't think there's any surprises here, which is why the markets aren't reacting that much,” said the famed and reclusive hedge fund manager, who called the October 1987 market crash. “We've been trading in the past 12 months leading up to this point so this is semi-anticlimactic.”

And there’s more! He added that a big rally in stocks was coming later in the year.

Talking to Andrew Ross Sorkin, the CNBC host, who wrote Too Big To Fail and was co-creator of the Showcase drama Billions, Tudor Jones was very bullish, despite rising US interest rates over the remainder of the year.

“I think we'll see rates move significantly higher beginning some time late third quarter, early fourth quarter,” Tudor Jones tipped. “And I think the stock market also has the ability to go a lot higher at the end of the year. ... I can see things getting crazy, particularly at year-end after the midterm elections ... to the upside."

Of course, Ray could be right about 2019 but Tudor Jones tells me that it’s not dumb to remain long stocks for the rest of this year.

I’ve said before I’d be more wary about stocks in 2019 on the basis that 2020 might bring the inevitable big market pullback but there are many developments that can pull that into 2019, or push it out to 2021, or even later.

This current US bull market is about nine and a quarter years old and is up somewhere in the 300% plus mark. But the longest bull market was in the 1950s and it went 15.1 years and put on 935%! With interest rates historically low around the world and in the USA where they’re on the rise, this could be a very long bull market that might even fool a great market mind like Ray Dalio.

I hope he’s wrong and Paul Tudor Jones is right but I’ll be forever watchful. And you’ll be the first to know if I switch teams!

I don’t think the ‘nuclear market’ threat is a clear and present danger, so I await a nice spike in stocks later this year.

 

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Published: Wednesday, June 13, 2018


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