Spoos 50 handles down in overnight, 12 hours later new all time highs. If you called that last night step forward and show me. Nobody of course called this. But these are our markets these days.
Now stuck in permanent technical greed the year 2020 continues on the same path as 2019 ended: Fed liquidity trumping, well, even Trump.
Markets remain risk free. Literally.
Why worry about risk? So what if we gap down one day? It’ll be green in 30 minutes. So what if we drop 50 handles in overnight? It’ll be green by open.
And that’s been the trend, every open is jammed higher no matter what:
Bears live in the dark and feast at night and hibernate during the day. And don’t kid yourself. Last night was a feast for bears many of which covered or closed some profits, the first real volatility event of 2020, and unlikely to be the last (see also $VIX 46). But actually there’s been quite a bit of 2 way action offering something for everyone. But more often than not the volatility and wider price ranges take place in the overnight scene.
But you can see no evidence of today’s overnight carnage. It never happened.
Too great is the desperation. The desperation to be long. Jim Cramer described it quite accurately this morning:
“The desperation to get into this market is extraordinary,” Cramer said on “Squawk on the Street.” “It’s frantic. They don’t even wait until the opening bell to get in. They try to take advantage of every little bit to be able to get in.”
There is no discipline. There is no consideration for value, valuations or technical overbought readings. No consideration for risk. Risk, what is what? Stocks are risk free assets now.
Does this not remind you of any particular time? If you were around in 1999 you may remember. No, this market continues on the same track and it’s all Fed driven. The Fed is now the primary investment criteria. We have no choice. We must be long even if we don’t want to be:
Markets remain a central bank market bubble operation, it’s the sole investment rationale for chasing historic valuations:
“I’m a reluctant bull, I suppose — it’s driven by central banks”
“My view is simple: central banks are flooding the system with liquidity” https://t.co/82xytMZIR5
— Sven Henrich (@NorthmanTrader) January 8, 2020
It’s a mockery of capitalism and market. It makes people reckless by force and bad habits are developed that would get you absolutely hammered in any other time.
And of course the desperation is taking place with the firm belief that this will continue.
And as far as we know it will:
They will never stop:
Central banks to unleash billions as QE is rebooted
“The Federal Reserve, BOJ & ECB are expected to buy almost £500B of debt this year and nearing £1 trillion by the end of 2021.”
h/t @LiveSquawk https://t.co/FtaYoe3Mae
— Sven Henrich (@NorthmanTrader) January 7, 2020
I won’t even bother making a point about valuations. Nobody cares. You can’ argue with drunks at the bar or desperate people to jump on a wagon even if that wagon is heading toward a cliff.
I maintain that the Fed has created a circus atmosphere with their repo and balance sheet operations and are blowing an asset bubble and are being entirely dishonest about it:
Anyone ever see an announcement by Jay Powell or the Fed that their plan is to expand the Fed’s balance sheet by over $400B in 3.5 months?
No? That’s because that statement doesn’t exist.The Fed is engaged in willful miscommunication with the public.
— Sven Henrich (@NorthmanTrader) January 7, 2020
Earnings are coming out soon. Earnings haven’t mattered in 2019. With the run we’ve had recently the onus is now on corporations to prove that they have the earnings growth everybody desperate enough to frantically chase stocks here must assume they have to justify the valuations that have been created.
No room for error. None:
$AAPL
Weekly RSI 87.57
Market cap $1.3T
PEG ratio 2.13
Quarterly revenue growth 1.8% (yoy)
Quarterly earnings growth -3.2% (yoy) pic.twitter.com/GK2dgif8ux— Sven Henrich (@NorthmanTrader) January 8, 2020
Frantic desperation to buy. I’m sure only the best investment decisions are made in such an environment. Best of luck.
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Categories: Opinion
Exchange Stabilization Fund called it. 🙂
Close enough for horseshoes & hand grenades…TIMESTAMPED 😉 https://twitter.com/sdmooks/status/1214633723154640898?s=20
You have spent a considerable amount of your life railing against the fed. Its too late
Its almost here Sven. Normally the yield on the10yr would rise to a point where people would not find stocks attractive and then we would switch from stocks to bonds. This time yields wont recover until we have the stock crash first. People are just slower to figure that out bc the normal rotation wont happen the same way this time. Not happy this is happening since I love American and it is going to be tough but that is what happens when you keep putting off the problem. Dont participate in the meltup. Store cash and be ready.
All true. But the liqudity is there and has to be invested to a certain share. And TINA to stocks.
The interest rates are low for a historically long time. And since the inflation is not moving up for a long time, this will continue. So this historic situation seems to justify a historic high valuation.
It is different this time. You say, people always say this. But concerning the interest rates it IS different.
I am not long since a few months, I don’t dare to be long, it seems crazy. Only in Gold I am long since a few months. That seems still reasonable.
There was always this “historical long low interest rates justify historic high valuations in stocks” in my mind. And I always had the feeling that I was too late for this to go long. And it is the same now. Difficult situation.
I understand your anger against the FED. They promote inequality, true.
But as an investor or as a trader, one trys to read the market, as it is – not as it should be.
If you are complaining about the FED as a trader, please give me a scenario, what could go “wrong”. Why should the market correct (apart from an external event like a war)?
If there is so much liquidity, even in the earnings phase people will be more tolerant. I am sure, there will be stocks which will correct sharply, like Netflix, but will there be a broad disaster of disappointments? I cannot imagine with the relatively low expectations of the markets.
Please tell me: What excactly can go wrong in the next weeks? Why should the big investors, who seem to get more and more liquidity, get out? What is the problem of the system, apart from the important moral aspect of promoting inequality and making the riches (investors) richer?
Maybe this is worth an article.
Looking forward to hear and read from you about it.
And apart from all that: I love your humour and sarcasm, fantastic! 🙂
this could go to 3500 or higher….and then crash 30% just in a matter of weeks…I stopped trading this market last june after losing a fortune trying to short it. I thouht after 23 years I had the skills to trade it…I was wrong. Simply too tough for me.
Good thoughts, who has a mind and enough treasury bonds to sell to spike rates? That would be a big event to get folks out of stocks…
You sure got me thinking about how people always say it is different this time. I believe what you say about that, and you said you are not going to be caught long. Thats all I am saying is for others to keep that attotude and dont be the ones holding the bag this time like in 09.
This time may be truly different and has proved to be as the FED is willing to inject money at a time when there is no crisis. Low unemployment, low interest rates, and all-time Market highs. So it is different. I understood QE, QE2 when housing collapsed and banks were struggling. However, I don’t not understand this massive Repo buying currently unless there is some major issue that is not being disclosed.
Since many analysts now claim that the Fed will never raise interest rates again, this implies that QE infinity is here and stocks will never fall ( in aggregate) again. If QE infinity is here, then buying stocks and maybe gold is really the only way to invest.
Obviously this will eventually blow up, but since the Fed is showing it really controls every tick of the markets, it may take years and S&P 6000 to break it.
Passive investment mkt structure we live in today is just as much to blame as the fed money pump, if u ask me. Obviously old school fundamentals based price discovery is a thing of the past, nothing new here. Perpetually we get worse. Be honest with yourself; it’s a traders mkt out there nothing else. This morning a great example!!
Trying to guess some big structural change in SPX direction (on leverage, lol) is the VANITY TRADE! Perhaps we should all be like poor mikey Wilson (ms) and ‘revise’ out net structural bearish outlook in favour of something more palatable (cash or just don’t do anything for a bit). Nothing will change re buy bk rules the current talk in house hasn’t gone anywhere. There’s a default gear (neutral is long) to global risk assets like a car on a hill with shitty brakes….
Sven, are you kidding with “no room for error” on earnings in 2020? SPX up nearly 30 percent against flat earnings in 2019. What’s supposed to change? In reality, doesn’t it just keep going as long as Powell is Wall Street’s boy?
It actually IS DIFFERENT.
When did we see negative rates in the entire human history? None.
All modern investment models, theories, analysis are based on the truth that if we save our money somewhere, we shall earn interest. No longer true.
Massive liquidity and the Fed? Maybe not as crazy as this before.
So I guess it does turn out the final squeeze or even the potential dodge of the recession might make sense.
But, the bull market always ends when the last bear gives up but can’t help turning bullish too….. : )
Buy something else that isn’t so crazy then. Something with forward looking potential. Emerging markets. Whatever. Just don’t buy US, with an expected return of 0.3% annualised over the next 30 years