Neil: Great to be here, Erik.
Erik: Now, for our listeners who may not be familiar with The Fourth Turning, I just implore you: Read the book. This is the most important book of our time, in my opinion. And that’s no exaggeration. Likewise, I strongly encourage you to listen to Neil’s earlier interview on MacroVoices. You can find that by just typing “Neil Howe” into the search box at macrovoices.com.
For anyone who’s not familiar, the basic thesis of The Fourth Turning is that we are all familiar with the business cycle: four- to seven-year cycles in the economy. There’s also a long way of business cycles: 80 to 100 years that you can think of as seasons or turnings, which really define important times in history.
Fourth turnings are when major things change. The last fourth turning before this one, of course, was the Great Depression and World War II. The one before that was the Civil War. The one before that was the American Revolution, and so forth.
A number of predictions that Neil made in the book were things like during this time – and this book was written way back in 1998 – he predicted that during the present moment in history we would be prone to electing extreme leaders and that there would be a lot of division in society as more and more people lost faith in long-standing institutions in society.
Neil, you’re batting a thousand, to be sure, with all of these predictions. But, as the man who made those predictions, I have to believe that as this fourth turning is unravelling before our eyes you must have a lot more insights in terms of how it’s going and maybe things beyond what you predicted in the book.
So, tell us a little more about what we’re seeing as this fourth turning unfolds.
Eric, it’s great to have you back on the program. It’s been too long.
Why don’t we start with the big picture on the stock market? We’ve got a lot of people saying, hey, that Christmas massacre was the buying opportunity of a century, because we’re headed toward new all-time highs and everything looks great – quite a few other people, myself included, saying I think this is a bear market rally. We may find the top is already in and we’re headed lower.
What do you think in terms of the big picture and where this market is headed?
Eric: Hey, Eric, thanks for having me back. It’s always nice to chat. I actually think that the equity market peaked last January, actually, January of 2018. I know we made a subsequent higher high in September into early October.
But I think one of those things that was lacking in this entire bull market was a real period euphoria. And I think that last January we had that type of activity in the marketplace. I mean, there was a very powerful up-move. It was clearly driven by euphoria over the big tax stimulus.
I think that that’s what we need to see in order to see a market top. I think we’re in a market-topping phase right now. There certainly are all kinds of different cross-currents. Some of the big ones are continued easy monetary policy. But I think that there are some debt and growth dynamics here that are presenting all kinds of headwinds.
Erik: Joining me next on the program is Gluskin Sheff chief economist and strategist, David Rosenberg. David, it’s great to have you back on the program.
Obviously, the big news in the last couple of days is the Fed’s dovish reversal. And the thing that is just fascinating to me, the way I see this, is the Fed has basically admitted that the economy is not strong enough to continue their hiking cycle. And inflation has not surfaced the way that they hoped it would. And, based on this, the fact that they’re admitting that the economy is weak, everybody is celebrating and just can’t buy enough stocks.
Am I missing something? And what do you make of the Fed’s policy change in the last couple of days?
David: I actually started to see this coming in the last few months of
2018 when I could see some of the strains emerging in the global economy and the US does not live on an island. And you could see this in other central banks: Bank of Canada, Reserve Bank of Australia, the Bank of England. Just look at what Mark Carney has been saying, and not just about Brexit uncertainty but globally in general and I was waiting, actually, for the Fed to start talking about some of these constraints because they seem to have been like an ostrich with the head in the sand. I was amazed at that market maelstrom/meltdown in December that they actually would have raised interest rates. It was historic for the Fed to raise rates in the sort of market meltdown across the spectrum that we saw.
Erik: Joining me as this week’s featured interview guest is petroleum geologist Art Berman. Now, for newer listeners who may not be familiar with Art’s work, I encourage you to listen to Art’s prior interviews. You can just go and type Art Berman into the search box at macrovoices.com and you’ll find seven or eight prior appearances.
We are going to be making reference to “comparative inventory” which simply described the government inventory numbers that tell you whether the amount of oil in storage went up or down each week. That’s not seasonally adjusted, which is what’s really important in order to understand the relevance of that data. So Art uses a comparative inventory model which compares the amount of supply added or subtracted from storage to what the five-year moving average is for this week of the year in previous years. If you want a full description of how comparative inventory works, it is described in one of Art’s prior interviews.
Art has sent us another fantastic slide deck. He’s known for his graphs and charts. So be sure to download the chart deck and you’ll find the link in your Research Roundup email. If you’re not yet registered, just go to macrovoices.com and look for the Download link next to Art’s picture on our home page.
Art, why don’t we go ahead and dive into your slide deck, since everybody loves your charts and graphs. What’s going on here, needless to say, since October we had a really big move down in oil prices. And we’ve retraced, I don’t know, about half of that so far, back up in the mid-$50s. Just today, as we’re speaking on Wednesday afternoon, it was another big inventory day and prices are up to, I think, a cycle high 58 spot 35 as we’re speaking. What’s going on here?
Barry, thanks so much for joining us this week. We really appreciate having you on the show.
Barry: Oh, my pleasure. Thanks for having me.
Erik: It’s great to have you on.
I want to start with the big question on everybody’s mind, which is: I’ve had a whole lot of smart people tell me, look, this bull market is over, the top is in, the bear market has begun, and what we’re seeing since Christmas is nothing more than a bear market rally. Well, if it’s a bear market rally, it’s an awfully exuberant one.
So how do you see this? Do you think that this equity market still has higher to go? Has the bear market really begun? And what do you see on the horizon?