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Exposing The Three Flawed Narratives Driving Today's Late-Cycle Euphoria

makeAhistory.comCrescat Capital's Quarterly Investor Letter Q1 2019, Authored by Kevin Ludolph,

The year-to-date rally in global risk assets after the Fed flip appears to us to be a last gasp of speculative mania for the current economic cycle.

In our view, three flawed narratives are driving late-cycle euphoria in financial markets today:

  1. “Central banks can always prevent a downturn in financial markets and the business cycle”;

  2. “US stocks valuations remain attractive”; and

  3. “Chinese stimulus and a US-China trade deal will reignite growth in the second half of 2019.”

We believe that the first two storylines are simply wrong. We show why herein.

Regarding the third, in our view, China is much more likely to tank the world economy over the next several quarters than rescue it given the historic credit imbalances there, which we also explain below.

Central Banks Do Not Have Your Back

There has been a huge misconception that global central bank liquidity is what is driving stock prices up today. Our work shows that

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