Building sand castles is great fun on the beach until an unforeseen wave or wind bluff picks up a grain of sand or two to cause your beautiful monument of creativity to come crashing down forever, right before your very eyes.

The date of ‘the fixer’s’ testimony, also known as Michael Cohen may mark the catalyst for the stock market’s house of cards to take off in a different direction. Markets are most fond of consistency. But when uncertainty and lack of direction take place, it’s not uncommon for markets to search for a floor. Investors have been getting high on optimistic rumors. They are the same people who buy the rumor and sell the news.

Until February 26, 2019, the market has enjoyed 29 positive days out of 41 trading sessions in 2019, opined David Stockman, the same day. It’s the best start to a year since 1987, which is remarkable when investors take into account the collapse of the earnings outlook for the first quarter.

Unless I am mistaken, the forecast for earnings growth in September 2018 was 6.7%.  By year-end 2018 that consensus was down to 3.3%. Today, it’s 1.7%. It could well be negative before we’re done. Yesterday, the “nominal” Institute for Supply Management survey reading that accounts for manufacturing and non-manufacturing has fallen over the past three months. The reading is now 13% lower than when the Great Recession started. It’s 19% lower than it was in February 2000, one month before the tech wreck started.

Now, let’s see how the coming debt ceiling roust plays out live and in color on television. Almost speaking in terms of winds and waves, these aren’t the only “crosscurrents and conflicting signals” Fed Chair Jerome Powell talked about before the Senate Banking Committee on February 25, 2019. As David Stockman, former OMB director, opined on the next day, “There’s also the fact that what we have here is a wheezing, debt-ridden, speculation-saturated 116-month-old ‘recovery’ that has knock me overwritten all over its forehead.

Despite the Fed’s efforts to appease Wall Street, it is liquidating its balance sheet at the annual rate of $600 billion. And with the federal debt now crossing the $22 trillion mark earlier this month, there are compelling signals that there is an abrupt slowdown among China’s principal suppliers, both Japan and South Korea. Let’s see how long this market can withstand the growing headwinds. Enjoy the melt up as you prepare for the melt-down. Now is the time to get ready for the unforeseen in 2019.

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