In my last article, “The Bears Have it Right: Economy went Polar Opposite of Bullish Predictions,” I laid out my first prediction for 2019 — a recession by summer. I don’t want the following revelations and facts that I have since come across to get lost in comments I recently posted to that article, so I’m bringing them all together here.

How bad was 2018?

The Wall Street Journal just said it was “one of Buffett’s worst years ever.“

For the full year, Berkshire Hathaway’s earnings were down 90% from $45 billion the previous year. Their biggest hit came from a $25 billion loss in the fourth quarter. Interesting that the fourth quarter hit the world’s most famous investor that hard because that is the very quarter I said would be the worst of all in the stock-market crash of 2018 (which I believe is ongoing by the way; more on that next).

For anyone who still thinks the stock market’s plunge at the end of 2018 was not already a significant market crash, regardless of what follows, I present you this evidence: The Wall Street Journal says that for the world’s greatest investor, it resulted in his worst year EVER! (And he’s a very old man.)

Next, consider that Buffet’s worst year was also one of the biggest years for massive corporate tax breaks, which fueled an epic boost to earnings (calculated after taxes) and to stock buybacks (which even Buffet engaged in), and consider that Warren Buffet is widely regarded as the shrewdest safest-betting billionaire on the planet, known for never having a bad year even if he does from time to time have a few bad investments.

And then consider that Buffet is also refusing to invest in the present market, even in spite of the present rally. Maybe even because of it. He is sitting on a massive cash pile of more than $100 billion, mostly in treasury bills, which he says he cannot wait to spend; and, yet, he is waiting for an opportunity to invest because he believes this market is overpriced and still has more falling ahead.

Buffet says in his annual letter to investors:

In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.

Berkshire Hathaway

Sky-high.

Where are we now?

Speaking of that rally, let us briefly survey the market’s present perch via a couple of graphs put out by Sven Henrich, starting first with a quote from his recent article:

For bulls the danger here remains that this rally was an extremely aggressive counter rally in context of a broken bull market trend. For a reversal in the near future could quickly change the perspective of this rally:

Northman Trader

Why? Because a reversal in the near term could confirm that the bull market trend is indeed broken, in which case the technical picture suggests that the December correction was just the first step. Remember, technically speaking, a break of the bull market trend in earnest suggests a much larger long term fib retrace risk:

That’s the recession scenario everyone seems to be keen on denying being a possibility.

While I have never made a market prediction or economic prediction based on charts, I have had to point out more than once to my bird-brained crow that hangs around here, that I do find it interesting when charts everywhere I look are starting to back up what I’ve already been saying. So, I am not using this chart as a basis for prediction but to show the precarious perch we have attained and that nothing about this rally so far is outside of being the kind of huge bear-market rally I have repeatedly said we can expect…..more here