Best of the festive season to all, we’re hoping it’s a safe one for you.

Before we get into the content of our last note for the year, we’d like to present the following chart from the irrepressible team at visualcapitalist.com   

Just food for thought, leading into 2019.

Back to the title.

We’re thinking “The Don” should have a stayed with this view he shared in 2016, instead of cheerleading the maintenance of 0/- interest rates and money printing QE.

With the comeback of thought to be eradicated volatility, he has now weighed in with some “timely tweets”, encouraging the worlds central banks to continue this mad experiment forever.

Miraculously, Jerome Powell, Chair of the US Fed, declined to oblige.

So, “what’s it going to take”, is the question on investors lips after copping a minor drubbing in the second half of the year.

This, below, was obviously not enough to change course. (Australia’s All Ords is down around 15% from its previous highs).

Making matters worse for equity investors is an erratic Smart Money index, chart below.

If the blue line goes anywhere near the red, we’re thinking this will definitely get the attention of the US Fed!!

“Smart Money” Index accounts for trading in the first and last 30 minutes of each session.

And, as Grant Williams points out below, the index is behaving like it hasn’t in its 30 year history. Not in 2000. Not in 2007. Never.

But really, “Professional” Investors with experience that predates 2007 know where to look:

Credit markets.

What might they have been if not for this below? Central bank asset purchases with one aim in mind, liquidity and interest rate suppression.

Both of which, for now, are missing from markets.

Check out the “heavy lifting” from Japan!

If you’ve got some assets to sell you could try writing to the BOJ but they might be winding back their program too.

We think they’ll be keeping the 45% of all Equity ETF’s they’ve purchased over the last 3 years.

Credit markets, again, …….more than half of US corporate debt now sits in the lowest tier thanks to corporates using cheap rates to buy back their stock, contributing heavily to equity market rises.

Bubble bubble bubble……..

As you imagine what might happen as rates go up and ratings go down thanks to a deteriorating global economic environment, check out what’s happening here!!

In recent times the price of leveraged loans has been a one way train down, which together with another week of record outflows from the loan market, is a most ominous signal, because should the loan market freeze up, 2019 will be nothing short of a credit disaster as billions of M&A and LBO deals lock up.

It’s just not hard to believe these signs are similar to those flashing in 2008. What would you expect if you try to solve a debt and derivative crisis with conditions that just create more?

More of the same, we’d say.

On a domestic credit level, we present this, below, with no comment.

There can be no doubt what the incoming ALP administration will do to combat the “knock on” effects of any mean reversion.

And you’d better be properly diversified out of the AUD by the time this comes around. 

Back to global macro.  Ex Pimco Bond chief, ex-Bond King, Mohammed El-Arian –  and a random sprinkling of phrases from his article “Risks rise for investors as developed economies falter”

Market choppiness, technical dislocations, behavioural biases, repressed volatility, market vulnerabilities, tighter liquidity, Fed balance sheet contraction, delicate economic conditions, drivers of growth – business investment, household consumption and government stimulus, economies losing momentum, instability and dislocation, danger of passive investing, technical fragility, asymmetrical responses, rollercoasters and volatility, loss-aversion biases, and “tail-events” 

Welcome to 2019

We repeat, the only way markets will turn from their current trajectory down, will be a turn back to Central Bank sorcery and the question you’ll need to ask yourself about the next round is. For how long will it work?

If it doesn’t work, print more, and if that doesn’t, more, and then, sooner or later, investors will realise it’s too late to allocate some of their investable assets to precious metals for “insurance” against this madness.

As it did in 2008, gold has broken out of its slumber and interest in the “useless yellow metal” has increased across the board.

Anyone else notice this?

If you didn’t notice, you’re not alone. It’s AUD Gold at more than $1800 per ounce.

Thus, setting the tone for 2019.

Peace.