Stay safe: A financial crisis could still be around the corner

Investors have been cheered by rate cuts, but Bill Bonner says don't get too excited…

Bear market and bull market in the stock market
(Image credit: Getty Images)

As we start 2024, we turn to a pressing investment concern. Our readers must be asking the same question we are: what if we’re wrong? 

We have argued that the “primary trend” in markets turned around in two moves: first, bonds topped out in July 2020; then, stocks reached their apogee at the end of the following year. We urged investors to move to MSM – “maximum safety mode” – while we awaited a crisis. Deflation was the immediate threat, not inflation. Higher interest rates would cause financing problems, we believed. Another shoe was bound to drop – a penny-loafer of a big company suddenly unable to pay its bills, a steel-toed government debt auction going “no bid”, a fast-moving crash in the stock market.

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Stocks behaved more or less as we thought they would too. The market sold off in 2022. Then, after losing almost 8,000 points, in September of last year, the Dow stabilised. But then, for no apparent reason, it recovered – led by a manic performance of the Big Techs, including a bubble-like enthusiasm for AI. Then, out of the blue towards the end of last year, the Fed appeared to pivot when it halted rate rises and signalled it was planning cuts this year. No crisis. No panic. And no real reason to drop the fight against inflation – after all, core inflation is still about twice the Fed’s 2% target.

So we stand by our forecast. All we have so far is a “weak pivot”. No major crisis. No decisive swing to lower interest rates and higher inflation. Is it time to get out of cash? Time to switch out of “maximum safety mode”? Where would you go – to stocks…when they are at all-time highs? To bonds…just as the US has its biggest monthly deficit ever? No, we wouldn’t abandon safety mode. Not yet.


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Columnist

Bill Bonner is an American author of books and articles on economic and financial subjects. He is the founder of Agora Financial, as well as a co-founder of Bonner & Partners publishing.