Thursday, February 4, 2021

Morning Note: A Hallmark of Every Bubble

As I continue to stress, two things financial markets (in the aggregate) can't live with going forward are higher interest and a rising dollar.

Here's a one-year chart (top panel the 10-yr treasury yield, bottom the U.S. dollar index):

Yeah, I know, but stocks are still rising. Yep, but they won't continue to -- of that I'm certain -- given the present setup, if this continues.

I'll keep this one brief; our main weekly message will be out shortly...

Asian stocks struggled a bit overnight, with 11 of the 16 markets we track closing lower.

Europe's mixed this morning, with 9 of the 19 bourses we follow in the red as I type.

U.S. major averages are bucking the global trend this morning: Dow up 281 points (0.92%), SP500 up 0.70%, SP500 Equal Weight up 1.01%, Nasdaq up 0.57%, Russell 2000 up 1.49%. 

While those are impressive numbers to start the day -- particularly against the global backdrop -- the gains are concentrated in banks (read higher interest rates), industrials and, go figure, utilities. Materials stocks and (save for oil) all things commodities are taking their licks (read higher dollar, and higher interest rates).

The VIX (SP500 implied volatility) is down 2.75%. VXN (Nasdaq i.v.) is down 5.06%.

Oil futures are up 0.13%, gold's down 2.42%, silver's down 2.65%, copper futures are down 0.43% and the ag complex is down 0.24%.

The 10-year treasury is down (yield up) and the dollar up a big 0.41%.

Buoyed by banks, industrials, AT&T, Verizon and tech -- yet dragged heavily by our commodities and materials stocks exposure -- our core portfolio is off 0.19% to start the day. Which is a complete reversal from how we closed yesterday's session (and how we finished January, for that matter) -- where our core mix notably bested the broader equity market (not our objective, by the way).

I.e., like I keep preaching, while indeed our core strategy will realize its fair share of volatility (although we're hedged against a total meltdown), it's not entirely correlated with the stock market, which you'll see as a good thing once you read this week's main message.

Here's one more from Hussman's latest commentary:
"One of the hallmarks of every bubble is a loss of interest or ability of investors to distinguish between investment and speculation. Once that mentality has taken hold, and prices become wildly elevated, it is impossible to sustain the bubble without also making its consequences worse."

Have a nice day!

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