Wednesday, January 6, 2021

Morning Note: The "Most Dependable Feature" of Bubbles

Well, the bond market isn't waiting for the one Georgia runoff left to call to be called.

As I type the 10-year treasury yield has thrust higher to the tune of 9.31%, breaching 1%, a level it hasn't seen in quite some time.

Stocks seem to be leaning toward a blue wave as well.

I've previously mentioned herein what might happen to the high flyers if/when their valuations are discounted against an interest rate higher than zero. 

Sure enough (at least for this moment), while small cap stocks are rallying on the prospects for larger stimulus than a gridlocked Washington might call forth, tech -- those "high flyers" -- are taking a hit (SP tech sector down 1.13%).

Asian equities -- on the on-again news that the NYSE is delisting 3 major Chinese companies -- gave some back overnight, with 11 of the 16 markets we track closing lower.

Europe's rallying nicely so far this morning, with 18 of the 19 bourses we follow currently in the green.

U.S. stocks, save for the Nasdaq, are in rally mode as well to start the day: Dow (on banks [read higher interest rates] and infrastructure plays) up 359 points (1.19%), SP500 up 0.53%, Nasdaq down 0.34%, Russell 2000 up 2.15%.

The VIX (SP500 implied volatility) is down 9.39%, VXN (Nasdaq i.v.) is down 7.28%.

Oil futures are up 0.04%, gold's down 1.04%, silver's down 1.60%, copper futures are up 0.27% and the ag complex is flat.

Per the above, the 10-year treasury is down (yield up) and the dollar is up 0.10%.

Led by banks, financials, oil services, materials and energy, our core portfolio is up 0.56% to start the day. 

While Wall Street, although this of course is perpetual, pumps the stock market, one of Wall Street's living legends, Jeremy Grantham (called the 2000 and 2008 bubbles) has his doubts.

Per this morning's Barrons

He argues that today’s bull market, born in 2009, “has finally matured into a fully-fledged epic bubble” that can be considered one of the great bubbles of financial history, akin to the South Sea bubble and those of 1929 and 2000. “These great bubbles are where fortunes are made and lost—and where investors truly prove their mettle,” he writes.

“The single most dependable feature of the late stages of the great bubbles of history has been really crazy investor behavior, especially on the part of individuals,”

As, you know, I'm in the it's-a-bubble camp as well. However, per my sympathizing with this Dave Rosenberg quote in the conclusion to our year-end letter, I don't see it as an entirely unmanageable setup:

"While I say we are in a bubble, I'm not saying it is impossible to invest in a bubble -- just know the environment and make sure you have some hedges."
Have a nice day!


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