Melt-Up Or Euphoria? A Rose By Any Other Name…
"Word is getting around about stocks", Bloomberg's Sarah Ponczek wrote Friday, in a sort of tongue-in-cheek nod to the notion that too much attention to the rally could be a bad thing in the event the melt-up morphs into outright euphoria headed into 2020.
By the time the closing bell sounded on Wall Street, US equities had logged another solid session, pushing to even higher highs. The S&P rose a fourth week, the 10th weekly gain in 11.
For its part, the Nasdaq surged more than 2% over th
I remember last year at this time. How many were bullish? Today how many are bearish? How different is the environment? Will revs grow much faster in 2020? How about costs? Should we be paying 25% more now for low growth/low inflation? Are bal sheets better today? Is innovation better today? Demographics? Fiscal policy? Why does the Fed need to do QE I (for infinity) if all is great? Bank risk low? Will trump act worse in term 2? Will $400bn more in inflows lead to $3tn of equity mkt increase? And on an on. Everyone knows everything is fragile but is fragility priced in? Does anyone care? Is Chuck Prince telling us to dance while the music is playing? Not sure about everyone but hanging out to cash in on the blow off is not tempting to me. Better do your work, have conviction and make smart investments. Just as Dec 18 and 2019 made fools out of bulls then bears 2020 could do the same especially the bulls. But who know maybe earnings will grow 10% forever, margins will expand (by definition), rates will stay low, the Fed will encourage more risk taking (who needs to worry about a hangover) and all will be well. After living through 50 years of markets not sure I outperformed buying at these times. Good luck you all. Trade/invest well.
What’s the market worth at 0% interest rates? A million?
What’s it worth at historic rates? 10,000?
I think it can be a pretty good time to take profits/raise capital, especially in tax-deferred accounts. I’ve been 100% stocks since 1980, and been burned at times (duh). But now I’m at that age (retired) where I’d rather get out a year early than a month late. No longer rationalizing pull backs as “Well, at least I’m getting things on sale in my 401K. And we all know the market likes to do exactly the reverse of what’s expected. Among many other things, I watch the CNN Fear/Greed Index. http://money.cnn.com/data/fear-and-greed/ It shows how fast things can whipsaw.
This historic blowoff is almost solely due to massive Federal Reserve balance sheet expansion (and easy CB monetary policy globally). I’ll be getting out of Dodge when the Fed, faced with rising inflation, finally decides it’s time to take away the punchbowl.
You and everyone else. Have to be proactive. But I think the world has realized that zero rates can never work and they are already primed to rise.
Watch the repo markets in the U.S. As John Mauldin points out in this week’s letter, the “weirdness” in September forced the Fed to increase its balance sheet by $335 billion (QE4), and it stands ready to buy more T-bills and notes, if need be. If the repo markets get sticky again in 1Q and the Fed steps in with more liquidity; risk on; if it doesn’t, risk off (and Trump’s head explodes).
This post can double as an explanation as well as define “reversion to the mean” the day after it happens……All that holds this mess together is the fact that no political system or entity has figured out how to survive the aftermath and it’s consequences..