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If stock markets go into decline, historians will date the global bear market from Jan. 26, 2018

Could we be in a stealth bear market? On the face of it, the question is bizarre: A bear market is usually defined as a 20% fall from a peak, but the S&P 500 is just 1% off its all-time high. If you hold the index, you would laugh at the idea that this is anything other than a bull market, albeit a rather slow one.

Yet almost every other measure suggests a bear market started last year. Dig into the S&P 500, and it is sending a deeply downbeat message, too.

If stock markets go into decline, historians will date the global bear market from Jan. 26, 2018, just before shares were rocked by a volatility shock. In dollar terms, German stocks and emerging markets are down 19% since then; the eurozone and the Brexit-challenged U.K. are down 14%, while Japan is off about 5%.

The U.S. economy has been performing far better, and so have its big stocks. But most investors in U.S. equities have had a pretty poor experience since January 2018, as the market was held up by a small number of large stocks. Even the S&P 500 is up just 4%, less than one would have earned just in coupons on 10-year Treasurys held for the 21 months since then. Add in the capital gain, and bond investors who rolled their investment into every benchmark 10-year Treasury issue since then would be up a whopping 13%. Relative to bonds, there is a bear market building up even in big U.S. stocks.

Investors who picked smaller companies have had a truly miserable time, as the S&P gains all came from its largest members. On an equal-weighted basis the index is up just 1%, and the flawed Dow Jones Industrial Average is up 3.7%.

Meanwhile the small-stock Russell 2000 index is down 3.6% from last January through Monday. By contrast, the Russell Top 50 Mega Cap index is up 5% over the same period.

“There’s quite a lot of evidence now that the bear market actually started in January 2018,” said Ian Harnett, chief investment strategist at Absolute Strategy Research.

It isn’t just that most stocks are down. Investors are miserable, too. Pretty much every measure of sentiment peaked early last year and has since plunged. Private investors were then the most bullish they had been since 2010, according to the American Association of Individual Investors, and only 16% reported they were bearish. Investment newsletters hadn’t been so bullish since 1986, according to Investors Intelligence.

Wall Street professionals were equally positive. More than four in five new analyst recommendations on S&P 500 stocks were upgrades in January 2018, the highest in Refinitiv data going back to 1985. Two-thirds are now downgrades as profit concerns grow. Chief executive officers' confidence in last year’s first quarter was close to the postcrisis high reached after President Trump was elected. Since then it has plunged to where it stood as the last recession was ending in 2009. Derivatives traders were buying call options designed to profit from rising markets rather than put options that aim to protect against market falls. Now the two are much more balanced, according to Cboe data.

The lack of exuberance is reflected within the S&P. Investors have been buying sectors that are most able to ride out a weak economy and are avoiding those that are most exposed to economic growth. The industrials, financials, energy and materials sectors are all down since January 2018, reflecting economic weakness.

Many investors say they are still buying U.S. stocks because of “TINA”: There is no alternative. With the 10-year Treasury yielding just 1.8%, stocks with rock-solid dividends or offering growth independent of the economic outlook hold appeal. Sectors such as utilities that are treated as bond proxies have done well as yields have come down.

Meanwhile, stocks with a long record of dividend growth have beaten even the megacaps, with the S&P 500 Dividend Aristocrats index returning nearly 12% including dividends since global equities peaked in January 2018.

What has to happen for the stealth bear market to turn into a real bear market? A U.S. recession is the most obvious reason to buy even low-yielding safe assets, as investors switch from seeking a return on their investments to worrying about the return of their investments.

Faced with falling profits, dividend cuts and highly leveraged listed companies, fear of a recession will show there is an alternative, just as it has elsewhere.

Negative bond yields in Europe and zero yields in Japan haven’t created a TINA-like rush for stocks among investors who want safety.

For the moment, the U.S. economy appears to be growing slowly rather than facing imminent recession, although recessions are notoriously hard to predict.

I remain hopeful that U.S. growth will continue, a U.S.-China trade deal will be concluded and the prospects of a sneaky bear coming out of the shadows to ravage stocks will recede. With investors cautious, improved geopolitics and renewed growth could lead to a big bounce. But this remains a hope, and it would be foolish to ignore the signs of serious trouble already visible in the markets.

LVMH Makes All-Cash Takeover Bid for Tiffany at Roughly $120 a Share

Tiffany is Formulating Response to LVMH, Companies Not in Talks

Trying to prepare for the next cataclysm could mean missing some of the market’s best days

Relax, it probably isn’t imminent. For something so infrequent, though, the “c” word is awfully good at grabbing investors’ attention. This Tuesday is the 90th anniversary of the granddaddy of them all, Black Tuesday, so it is natural to dwell a bit more than usual on the timing of the next wealth-destroying cataclysm.

There were U.S. stock market collapses before 1929, of course, such as the Panic of 1907, which also reached a crescendo in October. And by far the largest single-day crash of all happened in October 1987. Anyone sense a pattern? Well there isn’t one, but the coincidence has unfairly given October a reputation as a risky month to be in the market.

So what is the secret to profiting from a crash? One tried and true method is boldly predicting that there will be one and charging people for your insight. Roger Babson pioneered the practice with his 1920s newsletter making predictions that he claimed were based on Newtonian physics.

“Sooner or later a crash is coming, and it may be terrific,” he famously said weeks before the 1929 break. His reputation and fortune were sealed, despite the fact that he had made several gloomy predictions before.

Elaine Garzarelli, who nailed the 1987 crash in a TV interview, became the best-paid strategist on Wall Street and still profits from that call despite a spotty record overall. Her newsletter will set you back $495 annually and “due to the long term nature of some of our recommendations, there are no refunds on the price of the subscription.”

Robert Prechter, who claims he predicted the 1982 bull market using an arcane “wave” theory and has since reaped millions of dollars from subscribers, has made several shocking predictions over the years, such as the Dow falling to between 1,000 and 3,000 back in 2010.

“A grandiose, bearish call had about a one-third chance of being right in the past century,” estimates Mark Spitznagel, the chief investment officer of Universa Investments, which reportedly made $1 billion during the 2010 “flash crash.”

Stuck in the unlucky two-thirds? Fear not: Author Harry Dent, who has predicted booms and busts for decades with stunningly poor timing—for example, his forecast of a 17,000-point drop in the Dow in 2016—now predicts “a major financial crash and global upheaval that will dwarf the 2007-09 recession of the 2000s—and maybe even the Great Depression of the 1930s.”

Messrs Prechter and Dent and Ms. Garzarelli didn’t respond to questions about their predictions.

Even those who bet actual money correctly on crashes, such as hedge-fund managers John Paulson and Kyle Bass in the housing bust, have struggled after their big scores. Perhaps the starkest example comes from fund manager John Hussman, who anticipated the last two bear markets. His Hussman Strategic Growth Fund has given back all of its gains after prematurely bearish bets. A $10,000 investment in the fund made 19 years ago would be worth around $9,300 compared with $32,000 put in an S&P 500 index fund.

Mr. Hussman, a former finance professor, says “a decade of deranged monetary policy amplified speculation and disabled its limits,” bringing his preferred valuation measures near “1929 extremes.” He continues to expect a steep market loss as the market cycle is completed.

“I hope readers will time-stamp this story and save it for their children as a cautionary reminder, not of the danger of anticipating market collapses, but of the danger of declaring victory at halftime,” Mr. Hussman said.

If one were at all timely in predicting a decline as big as 1929’s—a gut-wrenching 89%—then the benefit to long-run returns would be tremendous. That is a big “if.”

“It’s fundamentally a fool’s errand” to try to predict a crash, says Mr. Spitznagel, whose fund profits handsomely by betting on such “black swan” events.

That seems like an odd thing for someone who effectively peddles crash insurance to say, but he doesn’t try to predict their timing or recommend dabbling in derivatives. The best way for less-sophisticated investors to prepare—which includes virtually everyone—is to accept that a crash could happen tomorrow.

Trying to sit out a crash often means missing some of the market’s best days—which tend to happen during volatile periods. Putnam Investments calculates that missing just the U.S. market’s 10 best days in the 15 years through 2018 would have cut your ending portfolio in half. Missing the 20 best days would leave you with two-thirds less.

The price of admission to those heady long-run returns is making peace with temporarily losing half of your money.

This week, everyone will be talking about Virgil Abloh's collaboration with Ikea, LVMH's play for Tiffany, Hedi Slimane's first fragrance collection for Celine and Halloween's spooky fashion moment. Get your BoF Professional Cheat Sheet here.

• LVMH has approached Tiffany about a potential takeover, according to media reports
• A deal would boost LVMH’s presence in the US and in hard luxury
• Tiffany shares are up 22 percent this year; the company has a market capitalisation of $11.9 billion

French luxury group LVMH offers to buy U.S jeweler Tiffany: sources

(Reuters) - Louis Vuitton owner LVMH (LVMH.PA) has approached Tiffany & Co (TIF.N) with an acquisition offer, people familiar with the matter said on Saturday, at a time when the U.S. luxury jeweler grapples with the impact of tariffs on its exports to China.

LVMH, which has for years been looking for ways to expand in the U.S. market, submitted a preliminary, non-binding offer to Tiffany earlier this month, one of the sources said.

Tiffany has hired advisers to review LVMH’s offer but has not yet responded to it, and there is no certainty that it will negotiate a deal, one of the sources added.

The exact price that LVMH was offering to buy Tiffany, which has a market capitalization of $11.9 billion, could not be learned.

The sources asked not to be identified because the matter is confidential. LVMH declined to comment, while Tiffany did not immediately respond to a request for comment. Bloomberg News reported earlier on Saturday that LVMH was holding talks with Tiffany.

LVMH, which is behind brands such as Fendi, Christian Dior and Givenchy, as well as Veuve Cliquot champagne, has stood out for several years as one of the top performers in the upscale retail sector, where not all labels are benefiting to the same degree from booming Chinese appetite for branded goods.

Tiffany, on the other hand, has not been as resilient. Beyond the tariffs that have been triggered by the trade war between the United States and China, a lower Chinese domestic sales tax has also contributed to double-digit decreases in its sales to Chinese tourists in the United States and in other destinations.

High-end brands have also long relied on Hong Kong as a major shopping hub which draws visitors from mainland China in particular, and four months of pro-democracy demonstrations are starting to take their toll.

However, earlier this month LVMH, which has a market capitalization of 194 billion euros ($215 billion), beat sales forecasts for the third quarter despite the unrest in Hong Kong. In August, Tiffany reported quarterly earnings that also beat analysts’ expectations, thanks to a drop in marketing costs.

Tiffany has been refreshing its offerings with more affordable items such as pendants and earrings, to appeal to millennials who have been gravitating to lower-priced competitors such as Denmark’s Pandora A/S (PNDORA.CO) and Signet Jewelers (SIG.N).

Paris-headquartered LVMH is controlled by the Arnault family and is led by Bernard Arnault, France’s richest man. Based in New York and best known for its expensive diamond engagement rings, Tiffany operates more than 300 retail stores globally.

Larger, riskier projects will come under more scrutiny, says Jean-Sébastien Jacques

Big will not always be beautiful in the mining industry, which will need to find new ways to grow profitably in the next decade, according to Rio Tinto’s chief executive.

Jean-Sébastien Jacques said the trend toward bigger mines would not guarantee success in the future. Instead, it would be the companies focused on improving environmental impact, partnerships and technology that would thrive in the 2020s.

“I’m not saying ‘big is beautiful’ cannot work, but it won’t be the key enabler of success in the future,” said Mr Jacques, speaking in London ahead of LME Week, the biggest annual gathering of the metals industry.

For decades, the industry has responded to growing global demand and the depletion of existing mines by developing ever-larger projects.

However, miners are facing increased pressure from investors, host governments and local communities to curb their environmental damage while delivering profits to their stakeholders. At the same time predictions that demand in China, the world’s biggest consumer of raw materials, is set to slacken has led to forecasts that demand for some metals and miners will flatline or decline.

Mr Jacques’ comments show how these concerns are shaping the thinking of leading mining companies. Rio competes with Vale as the world’s biggest producers of iron ore and is the leading supplier of aluminium and copper.

Rather than taking on “big bang” projects, miners need to consider developing small projects that could generate quicker returns for shareholders, local communities and governments, said Mr Jacques.

“They [big projects] take too long and the risk profile is too high,” he said.

One of the biggest problems miners face in developing their largest projects is the amount of time it takes to pay off construction costs, say analysts.

In the case of Rio’s troubled underground copper mine in the Gobi desert, Mongolia’s government — which is also a shareholder — will have to wait until 2030 at the earliest before it receives any dividends. This has led to calls from members of parliament to change the terms of the investment agreement that underpins the project.

Mr Jacques said Winu — Rio’s much talked about copper-gold find in Western Australia — was an example of the way the company wanted to work in the future.

While some analysts have said Winu is too small to be a Rio project, Mr Jacques said it could be a low-capital, low-risk development that could eventually support a series of mines in the surrounding area.

In that respect it would resemble Rio’s flagship iron business in Western Australia, which is essentially a group of mines sharing infrastructure, he said.

“I would rather have 10 Winu’s than one big project,” he added.

Mr Jacques said new technology could also help unlock billions of tonnes of “uneconomic” resources from mining waste, or tailings. Last week, Rio said it had found a way to produce battery grade lithium from waste rock at a site in California.

Mr Jacques said the “dream” would be finding a way to extract copper economically from tailings at its Kennecott mine in Utah. “We are working on it.”

Rio would also look to forge close links with its customers, he said.

The company recently announced plans to work with China’s Baowu Steel Group and Tsinghua University to reduce carbon emissions across the steel industry — from its iron ore mines all the way through to the end consumer