“We’ll know if it’s a bubble by the end of Q1,” BofA’s Michael Hartnett wrote, in the latest edition of the bank’s weekly “Flow Show” series.
For several weeks (at least), Hartnett has suggested it might not be a terrible idea to eventually consider “selling the news,” so to speak. He hasn’t used that old saw, instead reiterating a “sell the vaccine” bullet point that cautions on “peak positioning, policy, and profits.”
Needless to say, that call has been early, something he readily admitted this week. “Thus far [it’s] premature,” Hartnett said, noting that the blue wave in Georgia as well as “Powell/Yellen gravy,” gave market participants a “free call option.” (There are plenty of jokes around the idea of “Powell/Yellen gravy” — I’ll refrain.)
The pseudo-famous “Bull & Bear Indicator” is now venturing closer and closer to the danger zone, and Hartnett mentions “frothy prices, greedy positioning, and desperate policymakers” in the course of describing the current conjuncture.
Of course, as I’ve variously mentioned over the past several weeks, calling the top (which is just a less pejorative way of saying “market timing”) is notoriously difficult. It’s even more perilous when risk-free rates are zero (or below) and the liquidity spigots are turned all the way on.
Hartnett underscored as much, while reiterating the socioeconomic consequences of extreme monetary accommodation.
“[The] decade-long backdrop of maximum liquidity and technological disruption has caused maximum inequality and massive social and electoral polarization,” he wrote. The figure below shows that Wall Street is now six times the size of Main Street.
The wealth gains, Hartnett said, are “obscene.”
I can’t say I’d disagree. Outside of the proverbial peasant revolt, there’s never really a “bad” time to be a billionaire, but 2020 was especially kind to the world’s richest people.
So, when does it all come crashing down?
Well, that’s the multi-trillion dollar question.
For his part, Hartnett reminds investors that “extreme asset bubbles [are] the natural end to nihilistic bull markets.”
No, Donny, these men are nihilists. There’s nothing to be afraid of.