Today is historic as implied volatility is zero for the major indices and has been replaced by individual equity volatility. Google up 50, Apple down 50, Netflix up 40 and a myriad number of stocks up or down (mostly up) 5, 7, 10% today, most on no news. There are a lot of stocks looking very parabolic today.
I assure you that the money is not coming out of bonds in what the media calls “the Great Rotation”. It is simply Apple money combined with the new, freshly printed digital cash being used for the financial assets that have been targeted for inflation and levitation: equities. And it is costing the taxpayer nothing! Not one penny.
And that the most over-owned, over-loved and overvalued stock should lose $50 billion today and have zero negative effect on the overall market proves how hard our government is working.
Looking at individual stocks is downright scary as what goes up usually comes down. But most “investors” won’t notice. Instead it is all about the major indices making multi year highs and the SPX getting above 1500 and now just a few dozen points away from its all time high.
I find it ironic that the President most hated by the ”rich” is the greatest President for the rich. Say goodbye to Geithner as today is his last day on the Government payroll. This rally is his sendoff.
No, not the Boy Band but rather the major market indices.
It has been a wildly, beautifully bullish market ramp in the traditional time of year, from November 15 through the January option expiration. Overall index volatility is at decade lows. NYSE market breadth is at all time highs. There is talk not of ”green shoots” but rather ”economic stability” combined with the worldwide stimulus of trillions of dollars, euros and yen pumped into financial assets over the next year.
We have reached the place where the Central Bankers have sought to lead us: “Controlled Market Nirvana.”
Sure, there will be large individual stock movement. But individual stock volatility has replaced overall market volatility as measured by VIX. Even the thought of a “great rotation” out of bonds and into stocks has banks, brokerage firms, mutual fund companies and shareholders drooling with anticipation and delight.
Normally I would forecast a real pullback about now as earnings may not have been managed down low enough to be beaten . But today both IBM & GOOG have beaten slightly and are rising very sharply.
Maybe this year, the prospect of no end to the QE billions each and every month will reshape the calculus by preventing the normal ebb & flow of market phases. There has been some internal deterioration but it has not mattered, and the SPX is less than 100 points from its all time highs while both the Russell 2000 and the Dow Transports have already reached all time highs.
I expect there will be some tempering of the strong and steady swing to overall bullishness but that the corrective action won’t be severe or significant. In fact, it will be viewed as a buying opportunity.
I struggle to find new, cheap buys. I am not amenable to follow the momentum buying. Shorting is rare. While this phase may last “a while” it is the phase that requires full acceptance of the “greater fool theory”. Sure, prices will rise even after the markets have doubled and there will be buyers, but only because there is buying. There is no “value”, only the hope for higher price. And it can endure longer than your logic or confidence in analysis can stay solvent.
52 years ago today…
Each year the third and fourth quarters are steeped in “economic recovery”. Then every first and second quarter we find out it is simply “transitory”. Yet the market believes and rallies. The only difference this year is that now there is a “permanent QE” of at least $85 billion per month.
Amazing how much market complacency a trillion dollars a year can bring.
Even in the disaster year of 2008 the markets found “balance” during the months from mid-November through the end of January as funds are being allocated and re-allocated. Because where else can you put the money?
My thesis is that the markets would endure no pullback until after Inauguration Day. Well, it is here. Who says they don’t ring a bell?
Why do we believe the same shit, year after year?
Each and every year, since the “credit crisis” led to the looting of all things financial, we see a recurring pattern. Each year, beginning with the third quarter and going into the year-end, economic numbers perk up. Why? Because in America we spend the vast majority of our discretionary income in one big slug and in one month, from late November until late December.
The buildup to this orgy of year end holiday spending requires a significant uptick in procurement, production, transportation, hiring and a plethora of other services. And this buildup serves to create a false sense of an economic recovery that is extrapolated forwards. Yet this extrapolation is always wrong.
This past year, even with the hurricane and fiscal bullshit, we’ve spent a ton of money, both cash and credit. And the FED continues to pump a record amount of digi-cash, scaring those inflation hawks. BTW–there can be no Hyper-Inflation when the ”money” stays locked in the closed loop of the financial system. Sorry Peter.
This year we’ve got the world printing as fast as they can. America, Europe, Japan, China, busy printing digi-cash to buy bonds to fund governmental spending to keep interest rates low, to bail the banks out of their bad investments and to keep the balls in the air. And it is serving to make everyone believe that everything is “stable”. But more importantly, the pending changes in the tax law and the lack of legitimate low-risk investments is again forcing asset allocators to become even more aggressive as they perform as they are told to. Investment Models that are based on criteria for the “normal world” are still used but reach the incorrect conclusion as to how to allocate assets.
And all the while the world marches on, oblivious to the machinations of the Masters. And market participants just want to find the next 20% trade. And Inauguration Day is just around the corner. Ignorance is bliss.
Have a safe and happy weekend!
Since last summer, just after the Europeans began to “print” money to buy the Sovereign Debt that nobody else would buy, the markets have been on a slow, steady uptrend. I’ve enjoyed the “10 days up, 10 days flat and 2 days of terror” each and every month. But we may now see that changing.
We already know from past experience that each year’s third and fourth quarters are marked by a pickup in economic activity leading up to the holiday season. The pickup is heralded each year as a bone-fide economic recovery. Then, in each year, the first quarter severely disappoints on the earnings and growth front. It has been our pattern for the past four years and the markets are only to happy to fall for it, hook, line & sinker.
But the last day/first day of the year witnessed an giant “fuck you” to everyone. The Dow gained “only” 300 points but the SPX gained 60 points and the Nasdaq gained 150 points. In just two trading days. If you were short: fucked. If you were flat: fucked. If you were trying to buy: fucked. Only the perennially long, through thick and thin derived benefit. And why not? As long as markets go up, there are no real problems that will have to be dealt with. That is the gospel truth. Hallelujah!
Was the market movement based solely on the Fiscal Cliff bullshit? Does it matter if it is “fixed” or not? The government will tell the markets what they demand to hear. Nothing more, nothing less. Now they are talking about a “trillion dollar coin” to fix our ills. This is tanenmount to the government simply printing money for its needs. I was afraid that one day the Congress would realize that the FED was printing all the money that banks and the government need and they would formally ask to get rid of all the “middle men” and take the cash directly. Hell, its easier than passing tax reform or spending cuts!
And the Capital Markets? They couldn’t give a shit. All anyone cares about is “price”. The charts stay bullish so buy. This is exactly what the conspiracy-derived “Presidents Working Group” has been busy with each and every morning, pre-market.
But with the latest “blink-and-you-miss-it” pop in markets to multi-year highs, the tone has seemed to change, at least for the moment. Perhaps each month will now have “10 days down, 10 days flat and 2 days of orgiastic short-busting upside”.
Never mind that earnings will suck. Never mind the government disfunction. Never mind anything. Just count on at least $85 billion per month to keep the ball in the air and new all time highs just around the corner.