Climbing The ‘Worry Free Wall’
Don't call it a "selloff" yet.
After two straight weekly declines and losses in eight of the last 10 sessions, the S&P remains just ~3% from the highs, a testament to all manner of dynamics, from the esoteric to the obvious.
One thing that's become clear enough is that people know when the dips are coming. Or, wait. Scratch that. Market participants know when the door is about to open to a wider distribution of outcomes, and that may be encouraging some folks to front-run potential index "
I wonder if it’s worry free or numb from worry. I’m at an age where perhaps I should be free from worry, instead I find myself worrying about everything particularly children and grandchildren. When contemplating the market by various routes, they always lead back to equities, particularly US. Is there someplace else where money is treated better?
Great quote by O’Rourke.
In a world of Monopoly money, you can’t hold dollars, so you better hold either stocks or real estate.
It can’t possibly end well, but it’s been ending quite well since 2010. Even a pandemic can’t budge this market for more than a few months.
The only real risk to capital at this point is social instability. If it costs a million bucks for a two bedroom, that worker making $15 an hour isn’t feeling too great.
There is a finance website I used to occasionally visit many years ago, for perspective, called Calafia Beach Pundit. The main thing I liked there was his “Stocks Climb a Wall of Worry” chart, which used the VIX/10 yr yield as a barometer, set against the inevitable increases in the S&P500 performance.
That indicator was amazing to watch around the end of March last year!!!
I went back a few days ago and noticed he had modified his worry chart to simply compare the VIX to S&P, in what seemed like an attempt to add fear into his analysis and provide an image of future catastrophe. As background, one reason I never took the site seriously, was because of his increasingly supportive views on the trump economy and bad mouthing the Obama era, which obviously helped almost any republican that was invested in stocks … Furthermore, his message board was generally filled with like-minded political confusion.
Thus, it’s interesting to see how the wall of fear, in its previous iteration, that had been posted for many years, is now un-useful, and if anything a hinderance in his economic insight. It’s as if too much de-wormer has clouded an objective view of reality.
I recently reminded him of his old chart in 2 posts …
My Calafia off-ramp was its barking religious conviction that $300 a week in extra unemployment benefits was inviting lazy losers to sit on their couches while streaming and shopping online, thus undermining American meritocratic exceptionalism. H might or might not be among the 1% and has isolated himself from much of the rest of the world, but I know of no other blogger/analyst/commentator who seems better in touch with the other 99%. That is one of the things I like best about THR.
I check in to Mr. H on Twitter and it’s always nice to see the ongoing gain in followers. The content here is second to none.
As for Calafia, I wasn’t at all surprised that he didn’t respond to my (two) comments on, “What’s wrong with gold?” — but he did sort of comment on the recent “Money and inflation update”, by saying: “At the suggestion of a reader, I’ve updated Chart #7, a chart I have been featuring for many years now. ”
Unfortunately he decided to not change his Stocks Climb a Wall of Worry chart and use a ratio between VIX and 10yr — but as I mentioned before, too much dewormer in ones plasma can disturb cognitive functions.
Buying the dips works until it does not. When the market clacks about earnings and not about balance sheets you are in a bull market. Nobody cares about balance sheet and risk until things turn down-then everybody cares. Retail sales numbers looked good in August, but I have noticed nobody is talking up the fact that back to school shopping is a major tailwind for retail sales and it did not exist in 2020. Next month we will get a much cleaner read on the economy as some of the fiscal props come out. It won’t be a surprise to see a slowdown. We may see years of subpar growth starting in 2022. Be careful of slavishly following economic statistics. Right now they can be misleading….
H-Man, cudos to O’Rourke for summarizing the current state of affairs. If those factors don’t meet the “Wall of Worry” test, you wonder what negatives have to surface for the wall to emerge.