Thoughts from the Mailbox

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Since last week’s letter, I have flown enough to send me over 100,000 miles on American Airlines this year and make Executive Platinum. That is not necessarily a good thing. But wow, I learned a lot between all those flights.

Today’s letter will be a little different. First, I want to relate some of the conversations I’ve had over the last week in my travels—a little glimpse into the life of John. Then I’m going to reproduce some recent letters from readers, with some mea culpas and comments from me. I literally get dozens and sometimes hundreds of interesting letters each week. They make me think and I read as many as I can. I think you’ll enjoy them.

People often ask what I do on my travels and what it’s like to sit in dinners with serious market thinkers. So, let me tell you about my week. On Tuesday night, I had dinner with…

  • Art Cashin of UBS and CNBC fame, the world’s finest raconteur and senior statesman with exhaustive knowledge of all things markets. He was literally working on the exchange floor in the 1950s;
  • Peter Boockvar, one of the best data slicer-dicers anywhere, who writes several letters every day covering markets and the latest economic data;
  • Lakshman Achuthan, founder of the Economic Cycle Research Institute and the guru on economic cycles. Membership to his “club” costs well into six figures yearly. I went by to see him and some of his team before dinner;
  • Randall (Randy) Forsyth, lead columnist at Barron’s who has ably filled the venerable Alan Abelson’s shoes;
  • Barry Habib, who, according to Zillow, is the country’s top housing and mortgage analyst;
  • Brent Donnelly, Forex maven extraordinaire; and
  • New friend Jonathan Golub, Chief US Equity Strategist at Credit Suisse.

I know you really wanted to be at that table, so let me tell you what I learned.

I like to ask questions when I can get a group like this together. First question, at least the one at the top of my mind: When will the next US recession start? The average prediction was for the second half of 2019—just in time for 2020 US elections. Jonathan was the outlier, being certain it will be 2022. There were a couple of late 2018 guesses. Lakshman thinks the economy is beginning to cycle down but probably not enough for a recession this year.

My own vote is for late 2019, though I may turn more bullish as medium-term data comes in. I don’t foresee a recession beginning this year unless something new and serious happens.

Peter made an extraordinarily cogent comment that I’m going to use from now on: “We no longer have business cycles, we have credit cycles.” That means we have to pay even more attention to Federal Reserve policy. Will they continue to raise rates and reduce their balance sheet, and thus shrink the global money supply? Most everyone at the table was unhappy to see the Fed reducing assets at the same time they are raising rates. Throwing two variables into the mix when we don’t understand either’s effects is too risky.

The Fed has put itself in a box. If they back off, maybe they can postpone recession for a while but not forever. However, staying on course will risk inverting the yield curve. If a recession does begin this year, I will blame the Fed for this double-trouble strategy.

Randy and I both agreed, and a few others nodded along, that debt and deficits are the bigger long-term issue. Few see the connections between debt and GDP growth, and we are getting to the point where it will start being a drag.

Though we mostly agreed that this recovery is closer to its end than the middle or beginning, some think we could see an upside market blow-off first. It would be a final gasp, similar to what happened after the yield curve inverted ahead of the last two recessions. Stock investors ignored it until they had no choice. And as I wrote last week, we don’t have to see an inverted yield curve for there to be a recession.

So that was Tuesday night. The next morning, I had the honor of meeting Howard Marks of Oaktree Capital along with some of his team. I was blown away by what a nice guy he is, aside from being one of the greatest distressed debt investors ever. Howard will be at my conference next year, which I can already tell you will be the best ever. Put it on your calendar: May 13–16, 2019 in Dallas.

Then I met with Dr. Mike West and Al Franken (not the comedic ex-senator but one of Mike’s board members at BioTime). We talked about Mike’s relentless pursuit of Induced Tissue Regeneration. I truly believe the biotech revolution will restore older adults back to age 25, at least physically. Further, I think it will happen sooner rather than later, possibly within our lifetimes. The process will spin off many beneficial technologies and cures on the side, too. We spent three hours talking about their work and other issues. As you can tell, I have been Mike West’s biggest fanboy for well over a decade, as well as a close friend. This meeting left me more enthusiastic than ever about this technology.

That night, I was supposed to meet Ian Bremmer, NYU professor and head of the Eurasia Group. The plan was for drinks after he got off a plane from London. But as I was in the taxi, he sent me an email saying he had just learned his book made the New York Times bestseller list, and his wife wanted to cook dinner and celebrate at their home.

So instead of getting maybe thirty minutes with Ian, I ended up being hosted for three hours. As I mentioned in my last ever Outside the Box, I think Ian’s new book, Us Versus Them, is extremely important. You can read it in four hours and I insist you do. I don’t pound the table about books very often, but this one is critical. It resonates with my own thoughts on our society’s fragmentation and we need to wrestle with it.

We had a lot to talk about, but we especially celebrated getting that New York Times bestseller designation. Every author knows that is special. For those of us who sweat and labor over books, it validates our effort. I can tell you from personal experience, and talking with other writers, that the moment when you hear you made the list is truly emotional.

Iceland was amazing. I am paying more and more attention to the whole Bitcoin and blockchain world. It is still a young industry but already producing things like football-field-sized server farms—with much bigger ones coming all over the world. There’s plenty of danger and downside, too. This needs a longer story and a whole letter.