48 Hours

48 Hours

You needn't have worried, apparently. US equities effectively relegated Monday's fairly dramatic swoon to the dustbin of history in a matter of 48 short hours. I'm compelled to quote myself. Or, actually, "compelled" isn't the right word. I don't need an excuse to quote myself. I'd do it regardless. There's no surer sign of narcissism than someone who quotes themselves habitually. The saving grace is that I pair an obsessive commitment to self-awareness with my narcissistic personality disord
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8 thoughts on “48 Hours

  1. Thanks for your comments on narcissism, arrogance and self awareness/conscientiousness. Reminds me of a line from Jurassic Park…”I hate always being right”.

  2. Corrections that last a bunch of hours has got to be scaring all the Bears out of the woods.
    I did some selling Friday, I found myself buying a bit more on Tuesday. I thought things would grind down slower than mere hours, but it is only Wednesday

    1. This thing smelled overdone Monday so having missed the sell side Friday just dropped discounted orders in late Monday and held my nose.. Nothing after all had really changed on the political front and the commodity play was still inevitable sooner or later or just plain later..
      It’s the Fed toolbox which they will use till they can’t ….but that time is not NOW..

  3. What is different now from, say, a few months ago?

    Second derivative has flipped to negative. 2Q21 is peak YOY and QOQ for most every growth metric, in a US context anyway.
    Vaccination has failed, as a strategy to bring pandemic to a rapid end. Many countries, including the US, will have another Covid surge in 2H21.
    Biden is running out of time to get a meaningful infrastructure bill passed. Something could still happen, I guess, but is likely to underwhelm.
    3Q21 will see most pandemic assistance programs end: PUA, enhanced UE, eviction moratoriums, foreclosure deferral. Unclear what that will do to consumer data points. Logically I think “not much” but turning off a giant spigot of money is never going to be totally benign.

    As I alluded in another discussion, the market has been acting like it normally does when we leave early cycle and move into mid cycle. That’s ok, the playbook for those transitions is well enough known, it gives us a whole new set of things to buy.

    The concern is that a cycle transition at the same time as a sharp slowing in stimulus and a sharp rise in Covid with the resulting protective behavior may produce signals that look like hints of a coming recession or mid-cycle slowdown (a la 2015 ish).

    What do traders, human and electronic, do when the yield curve flattens, consumer spending pulls back, earnings growth decelerates, earnings surprises diminish, GDP forecasts get shaved, and October looms closer? Oh and when the fat capital gains from mid 2020 become long term, with tax increases still theoretically on the table?

    I suppose the risks of policy mistake, inflation not proving transitory after all, or vaccine-evading variant could get thrown in there, just to give us more to think about.

    I’m not saying that the outlook is terribly negative or even that it is necessarily negative at all. There are still a lot of positives out there. But after a year when we could all have very high confidence in the coming stream of almost uniformly positive catalysts, the road ahead looks bumpier and lumpier. Best to keep pedal floored and crash through the potholes, or throttle back and take it slow?

    A lot of market participants have made a lot of money in the past year, and they will be thinking about how to protect it. If you were up a butt-load in 2020 and tacked on another 15% in 2021, dialing back the risk and coasting to the 2021 bonus has got to be at least crossing your mind.

    1. My simplistic feeling is that it’s summer and time to coast with the portfolio. Sustained volatility and extended sell-offs will likely return in September / October. I’ll save my nerves ’til then.

  4. What is eloquently articulated in this piece is how disconnected markets are from reality. Sure you can make the reflation/post-pandemic recovery argument with some merit and maybe peak growth, peak inflation is right, but what is really much more important is the psychology or narrative that we all believe that others believe namely in liquidity, Fed put, ect…The result is Pavlov, but equally the fragility injected into this ecosystem means that at some point there is going to be a reckoning of epic proportions. It seems a fools errand predicting this as my PnL suggests on short positions.

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