Thursday, September 23, 2021

Morning Note: "The Twilight Zone"

The latest Grant Williams Podcast featured Prerequisite Capital's Daniel Want. The following from that conversation speaks volumes about the unique market landscape we find ourselves presently traversing:

"...when market mechanisms are being suppressed or disengaged you don't get the signal that you used to. So what the older guys, who've grown up especially in the industry the last 50 years are used to, is how the system inherently works, well we're in the twilight zone, relative to their paradigm. And it is crazy, and even foolishness is actually getting rewarded."

"To the degree that market mechanisms are intact, it tends to clean out people who operate in a foolish or overaggressive manner. But if you suppress them and inject moral hazard as well, and you don't necessarily match the authority and the ability to take a position, and you don't match it with the real world risks and consequences of originating that position or risk exposure, you're going to have all sorts of problems multiplying in the system."

And when those "problems multiplying in the system" begin to threaten, the powers that be responsible for the suppressing (of market mechanisms) will go to great lengths to paper (or print, if you will) over said problems.

In the meantime, us "older guys" need to remain open-minded to evolving market structures, invest accordingly (i.e., per this week's message, look to where the puck is ultimately headed, as opposed to where it presently sits [or where it's been]) and be very cognizant of the fact that while market mechanisms are indeed being suppressed, bulls and bears will still crowd either side of the proverbial boat... And, suppressors notwithstanding, that boat is forever subject to some serious risk of tipping over. Hence, we hedge against drowning... 

Asian equities leaned green overnight, with all but 3 of the markets we track closing higher.

Europe's rallying this morning as well, with 16 of the 19 bourses we follow in the green as I type.

U.S. stocks are up notably, across the board: Dow up 476 points (1.38%), SP500 up 1.25%, SP500 Equal Weight up 1.49%, Nasdaq 100 up 1.00%, Nasdaq Comp up 0.96%, Russell 2000 up 1.01%.

The VIX sits at 18.69, down 10.45%.

Oil futures are up 0.91%, gold's down 0.85%, silver's down 0.05%, copper futures are down 1.08% and the ag complex is up 0.54%.  

The 10-year treasury is down (yield up) and the dollar is down a big 0.47%.

Led by energy, bank stocks, Viacom, ALB (lithium miner) and Eurozone equities -- but dragged by uranium miners, gold miners, gold, solar stocks and inflation protected treasuries -- our core portfolio is up 0.69% to begin the session.

Just started reading Hari Krishnan and Ash Bennington's latest -- and timely! -- book Market Tremors: Quantifying Structural Risks in Modern Financial Markets. Excellent so far! 

Here's a snippet:

"This “volatility paradox”, where market fragility is high, but overall volatility is low, has become a stubborn feature of modern markets. Historically, the volatility paradox has been restricted to the later stages of a real economic cycle, where it creates a toxic blend of plentiful credit and investor complacency."

Have a great day!

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