When last we checked in on Wells Fargo’s Chris Harvey, he was adding his voice to the chorus of analysts talking about the rather unfortunate situation the buyside has found itself in following the October rout, which led to massive de-risking and performance destruction ahead of what has since morphed into an impossibly precarious daily “chop” characterized by manic headline hockey around trade and increasingly unhinged tweet storms from Donald Trump.
Fast forward to Thursday, and Harvey was out with a brief note that contains so many quotables it’s hard to know which ones to cherry pick.
Harvey has a pretty casual, colloquial style as regular readers are probably aware. Earlier this year, for instance, he characterized the Fed as the “popo”. “Equities are no longer a one-way trade and ‘fear of missing out’ (FOMO) is quickly giving way to fear about the Fed or the POPO, the monetary police”, Chris wrote, back in January, on the way to delivering the following truly hilarious footnote for any clients who aren’t up on their early 90s street slang:
**For the uninitiated. POPO is a term for police officer (PO) which came from bike mounted police officers. They wore vests with the initials PO, short for Police Officer and usually traveled in twos, hence POPO.
It turns out he was right to warn about the possible perils of tighter monetary monetary policy under Powell, because literally a week after that note was published, stocks careened into correction territory and it’s been a rough ride ever since.
Anyway, in his Thursday note, Harvey suggests that investors have gotten too soft if they can’t handle a year when the S&P doesn’t deliver double digit returns.
“Some are yelling Bear market even though the SPX is flat YTD [and] we think the placidness of ’17 has made some investors a little soft”, he writes, adding that “if you want to see the start of a Bear market, google ’00 and take a look at the action and P/E of CSCO. It ain’t AAPL circa 2018.”
No, it “ain’t”. This is what Chris is talking about:
Still, the fact we’re not witnessing one of the greatest blowups in the history of finance (as the dot-com bust most assuredly was), that isn’t likely to be much comfort for Apple investors, who have lost ~30% since the end of September, a prospect that would have seemed laughable a scant four months ago.
Harvey then touches on the buyside again, noting that “many PMs [recently] went from besting the market to hating life.” The recent de-risking, he says, “rivaled the Summer of ’07, Quant meltdown [but] this time it was mainly Fundamental PMs levering Growth strategies [rather] than Quants levering Value.” That’s just another way of saying that the ubiquitous hedge fund “VIPs” (Tech and Growth and Momentum) were soundly routed in October, leading the Long/Short crowd to frantically de-leverage, massively trimming September’s record exposure.
“Things have gotten so bad that 2Yr Govies are threatening to replace a portion of the 2&20 crowd”, Harvey then jokes. That is cold blooded, Chris – and while I doubt clients appreciate it, it sure is funny.
Finally, on the curve, Harvey describes this in cinematic terms:
On the yield curve, the Treasury market seems to be having a Dirty Harry (Clint Eastwood) moment with Powell. To a degree, they are testing his conviction and mettle. The message seems to be that if you think the economy and inflation are that strong go ahead Powell – make my day – invert the yield curve – it’s all you!
Again, Harvey has no qualms about speaking colloquially.
In any event, this is just a bit of cheap weekend market entertainment, and there’s not a lot that’s profound here, but we imagine readers appreciated it as an interlude from some of our more esoteric pieces. We’ll give the last word to Harvey:
…it looks like Santa got mugged on the way to the rally (…much to our chagrin).