This time it's different

The ‘mother of all bubbles’ could blow up the economy if profits don’t improve, warns Blackstone strategist

“When we try to pick out anything by itself, we find it hitched to everything else in the universe,” wrote famed naturalist John Muir more than a century ago, referring to an epiphany he had while hiking in California’s Yosemite Valley.

In our call of the day, Blackstone BX, -0.93% strategist Joseph Zidle offers a similar take, but with dollar signs instead of granite cliffs.

“At the end of any economic cycle, we often get warnings that appear to be unrelated,” he wrote in a recent note. “It’s in hindsight that we realize that they were not at all random.” Investors saw this during the runup and aftermath of the housing bubble, he added, and we’re seeing it now.

Among the recent troubles he thinks are connected are repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing. And every cycle ends with excess.
‘Cyclicals and low-quality stocks should outperform in an improving earnings environment; new highs in equity markets will likely be set.’Joseph Zidle

The “mother of all bubbles” in the sovereign debt market, Zidle says, is the catalyst that will likely trigger the next recession. He expects that to happen between mid-2020 and the end of 2021.