Monday, January 9, 2023

Morning Note: Fomenting FOMO

Thinking out loud (on my keyboard) this morning, it seems clear -- tracking market internals -- that market players, in the aggregate, really want to buy equities right here... So much so that they'll sniff out whatever kernel of bullish evidence amid all the data they can, and buy it with both fists... “Bullish” being anything that hints of cooling inflation and an easing Fed -- in other  words, anything suggesting that the economy is weakening... Slowing December wage growth tucked within Friday's labor report would be a prime example... 

Or, we might think of it this way; traders are all in on the above narrative and, therefore, are bidding up stocks a bunch in anticipation that investors will jump (in), given the slightest provocation…

The plethora of reminders from Wall Street on history's claim that the best years tend to follow the worst, no doubt foments a not-small amount of FOMO (fear of missing out) right here as well.

I get it, I feel it as well... Thing is, the general underlying setup that supports this presumed setup -- or that has folks thinking as they currently do -- likely presumes that, 1, the Fed will waver given the slightest provocation, and, that, 2, the Fed wavering will do the trick -- i.e., fix the broken stock market and make it the money-making machine we've grown accustomed to these past many years...

Well, in terms of the Fed, while indeed they'll fold when the going gets tough, the question is how tough will it have to get before they fold up their monetary tightening tent? For the moment, they're remaining, well, tough, themselves, and promise to keep rates higher for much longer than markets are presently discounting...

In terms of whether, when they fold, the bear market will immediately end, I can tell you that today's bears themselves don't see it that way... While certainly an aggressive rally would ensue on the announcement that a rate cut's coming, the bears are quick to remind us that during the past two epic bear markets ('00 to '03 and '08) such Fed-induced rallies ultimately failed (miserably), with the final bottoms not seen until several months after the Fed started getting serious.

I get that, and I feel that too... Thing is, there's quite the regime shift underway that didn't exist during those past two epic bear markets -- 2008 being the best example... Recall that the "Great Financial Crisis" had authorities swooping in and saving the banking sector, while leaving consumers holding the bag (full of utterly shattered financial dreams)... I.e., saving the banks, was, at it's initial juncture, insufficient in terms of saving the economy and, thus, the equity market -- i.e., stocks had to get way cheaper if indeed the consumer was going to bear the brunt of the real estate/mortgage securities bubble bursting...

Fast forward to 2020, and what was, in our view, set up to be the GOAT (greatest of all time) of financial crises was effectively averted by authorities stepping in and bailing out the whole shebang! The financial system AND the consumer.

Now, that's a precedent we can ill afford to ignore, and it jibes perfectly with that "labor-friendly" (populism) regime narrative we've been harping about these past couple of years... And, make no mistake, as we've been describing of late, we're seeing it the world over.

So, indeed, this time may be different... We may very well see yet another covid-style bailout of the consumer, and the financial system, if/when the next leg down begins to seriously unfold -- which we can assume would indeed do the trick and usher in the next bull market far sooner than in those previous two instances.

Stay tuned.

Asian stocks rallied overnight, with 15 of the 16 markets we track closing higher.

Europe's very much in rally mode as well morning, with all 19 of the bourses we follow trading up as I type.

US stocks are all bulled-up to start the week: Dow up 156 points (0.46%), SP500 up 0.93%, SP500 Equal Weight up 0.73%, Nasdaq 100 up 1.65%, Nasdaq Comp up 1.52%, Russell 2000 up 0.91%.

The VIX sits at 21.58, up 2.04% (interesting!).

Oil futures are up 3.43%, gold's up 0.57%, silver's up 0.30%, copper futures are up 2.93% and the ag complex (DBA) is up 0/77%.

The 10-year treasury is down (yield up) and the dollar is down 0.75%

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 28 -- led by Dutch Bros, AMD, MP Materials, base metals futures and uranium miners -- are in the green so far this morning. The losers are being led lower by AT&T, Brazil equities, treasury bonds, defense stocks and healthcare stocks.

Emphasis below mine:
"In complex systems, it has been found that the organization of spatial and temporal correlations do not stem, in general, from a nucleation phase diffusing across the system. It results rather from a progressive and more global cooperative process occurring over the whole system by repetitive interactions."

--Sornette, Didier. Why Stock Markets Crash

Have a great day!