By Barbara Kollmeyer, MarketWatch
Getty Images for Vanity Fair
The stock market is currently counting on about 55 more miles of border-wall funding, to put it crudely.
That’s the rumored deal on the table right now to avert a shutdown, and one reason for the renewed buying attitude on Wall Street. But given the Oval Office has to stamp its approval on any deal, watch this space and maybe @realDonaldTrump, who had a few things to say in El, Paso, TX last night.
Politics is one of many market balls that investors are juggling these days. Our call of the day from Hayman Capital Management founder Kyle Bass, offers a refreshing top-down view on a lot that’s ailing markets currently — but investors should steel themselves for what may be a less-than-bullish outlook from one investing honcho.
“Markets will rejoice to the extent we get to a win on a trade deal. It’ll be short lived. My guess is by the end of the year the U.S. market will be lower than it is today,” Bass told Bloomberg in an interview that aired Monday. Bass earned his street cred back in 2007 making winning bets on subprime loans and the collapse of the U.S. housing market, so investors ought to take heed.
In the interview, Bass doubled down on a prediction that he made last year that the U.S. will face recession by 2020, citing headwinds such as global growth. He explains Chinese data, such as industrial production is looking shaky, while Italy entered recession last week and he gives Germany three to six months before its own downturn.
Then there are the homegrown problems. “The U.S. has this positive stimulus coming from the tax cut that we believe had a $250 billion impact last year, and it’ll have a $400 billion positive impact in total this year, but next year it will only be $150 billion,” Bass says, adding that the deltas, or differences, here are important.
“The deltas from this year to next is minus $250 [billion] so I think economic activity will begin to wane in the back half of 2019, and by the middle of 2020 we’ll most likely be in recession,” he says.
And Democrats are probably not going to “let Trump stimulate into an election year. They’re saying behind the scenes that he’s taken the economy hostage and they’re going to let him shoot it,” he said.
A big problem is that the Fed, whose policy Bass grades an “F” right now, can’t help. “The U.S. stimulated at full employment with our tax cuts. That stimulus is about to wear off. What I worry about is the last three recessions we’ve had in the U.S., we’ve cut rates 500 basis points. Now, we can only cut them 225 or 250,” he said.
In other words, as he says, “we don’t have the arrows and the quiver” when it comes to Fed ammunition.
Separately, Bass and Daniel Babich, senior managing director at Hayman, wrote an op-ed for Bloomberg in which they implore the U.S. administration not to settle short over China and push for a bigger overhaul over “bulk economic espionage and theft.”
“Given December’s market decline in the equity markets, I think you see President Trump now potentially telling his team to just get a deal done and I think that would be a big mistake,” given the work his team has done, says Bass, adding that a deal on trade is just 10% to 20% of the whole argument that includes intellectual property theft, industrial policy, etc.
How to invest against a backdrop of a recession, tangled Congress and hapless Fed? Our chart of the day says no one is easily convinced these days. Read on.
The Dow /zigman2/quotes/210598065/realtime DJIA -4.06% , S&P 500 /zigman2/quotes/210599714/realtime SPX -3.37% and Nasdaq /zigman2/quotes/210598365/realtime COMP -3.79% all opened with strong gains as shutdown fears abate. On Monday, the Dow slipped, but the S&P and Nasdaq inched up. Read more in Market Snapshot.