so ... are you guys bullish or bearish? why?

I'll tell you what, I cover Industrials and all my companies say this is the best environment they've ever seen. I was at a conference last week and heard the words "second or third inning" several times. The other thing I heard a lot of is that this pickup in demand/volumes is more being fueled more by an overdue replacement cycle rather than growth capex, which is fair for them to think that after a de-stocking in 2015 that hit cyclicals especially hard. Now I personally take all of that with a grain of salt, huge grain. The reason these guys are referred to as cyclicals is because they have proven time and time again that they are very shitty at forecasting. So is that optimism indicative of a top? Certainly possible, but also possible that they have it right at this time.

Overall I'm just seeing mixed signals all around. The one that sticks out to me however is the yield curve. I like to track several spreads: 2/10, 10/30, 3M/30, all of them have been flattening at a steady pace over really the last 3-4 years. At the current rate of flattening, the curve should invert sometime in the next 6-12 months. Historically, a recession follows an inversion anywhere between 6-24 months. So that implies a range of between 12-36 months before the next recession. There is no guarantee that the curve will continue to flatten at the same rate, and this is just one indicator, but it's just the one the sticks out the most to me and has been historically extremely reliable. Gun to my head, I would think that we could end up getting a recession in the shorter end of that implied range. Reason being, the other theme that seems to persist within my coverage is higher prices in 2H. Commodity prices are mixed overall, but key input material prices like steel and crude have rallied significantly this year. Every single one of my companies said that they are passing those prices through. All of them past cost through on a 1-2 quarter lag and I expect prices to pick up into the end of 2018 more than currently forecast. An unexpected rise in inflation should undoubtedly force the fed to raise rates faster or tighten in larger increments. That should cause the curve to invert at a faster pace while also tightening credit throughout. There's also like 2-4 trillion of corporate debt maturing over the next few years that will need to be refinanced at these increasing rates. It's certainly all coming together in somewhat textbook fashion.

The one spread that has seemed to stop getting flatter is the 3M-5Y, which is arguably more important to banks and net interest margins, but this spread also flattens much quicker than the others. I hear push back on the concept of an inverted yield curve all the time now (Yellen herself said that it no longer matters when she was still chairman), that's honestly complete bull shit and how many times have you heard "this time is different" right at the end of the cycle? An inverted yield curve will always tighten credit as it squeezes commercial lending, nothing has changed in regards to banks borrowing at short-term rates and lending at longer-term.

A bit of a long-winded response but I'll just say I have positioned our Industrial exposure as conservatively as I can without taking an outright bet against the cycle. In my PA i'm in short duration treasuries as I'm truly scared of what panic-selling will look like in the age of passive ETFs.