"The ground beneath you is shifting, and either you get sucked in by holding on to old ways, or you take a giant step forward by taking some risks and seeing what happens." - Bonnie Hammer
There are certainties, there are probabilities, and there are possibilities. The role of every investor is to make decisions based on the very real possibility of a historically low probability event becoming a higher one and acting accordingly in case that possibility becomes a certainty when it's too late to do anything about it (now THAT is a brain teaser).
At the end of April, I appeared on Real Vision and made the case on a highly popular interview that a Spring Crash for stocks was possible given significant divergences into the advance of the "market" which everyone mistakenly believes is the S&P 500 (SPY) (click here to view S&P 500: Something is Ridiculously Wrong (w/ Michael Gayed) | Trade Ideas). It was not a scare tactic by any means. At the time, I explicitly pointed out the enormous disconnect between the direction of US equities and lumber.
Since then, seemingly everyone now has some research and observation about lumber prices as a leading indicator for stocks. The observation I made several weeks ago on lumber was not one based on opinion. In the Founder's Award winning paper "Lumber: Worth Its Weight In Gold" I co-authored, it is quantitatively proven that lumber strength and weakness historically has preceded risk on/off environments. Of course, there are plenty of false positives and negatives along the way, but when lumber is weak, risk is high for a crash in stocks after.
Lumber has little to do with China because it is primarily driven by US housing and construction demand. US housing and construction demand is important as drivers of not just the economy, but also consumer wealth. When we look at PMI activity and construction spending, it is clear that something deeper than just trade war concerns is happening beneath the market's surface - an argument I've been making in my recent Lead-Lag Reports here on Seeking Alpha.
My point is it's not just some "illiquid" and esoteric observation. It's 2019 - lumber matters more than Facebook (FB), Amazon (AMZN), Netflix (NFLX), etc. And if history is any guide, Lumber weakness historically suggests fundamentals and earnings are about to turn for the worse.
I'm going to keep repeating myself. The analysis I did on Real Vision has little to do with China (FXI). Don't think if you get a trade deal we are out of the woods (literally). Current probabilities do favor the very real possibility of a Spring Crash in stocks. In my opinion, it isn't worth the possibility of that becoming a certainty when it's too late to do anything about it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.