How To Make Sense Of Stocks In Modern Markets
Earlier this month, at least one bank suggested dip-buying, as a strategy, failed following the worst month for US equities since the onset of the pandemic.
"Buying the dip has failed to be profitable this time," BofA's equity derivatives team wrote, in an October 5 note, as stocks looked poised to struggle amid a mounting list of macro headwinds.
The S&P's fourth-longest streak without a 5% pullback in five decades was over, and predictably, the financial media jumped at the opportunity t
I don’t want to go out on a limb, but since I’m already out there I may as well saw it off: with the pandemic increasingly in the rear-view mirror (I know, supply-chain issues, but Klain is right: rich-person problem) and seasonality trends, this market feels like it wants to go higher.
Wow!
LOL.
For most of us hoi polloi TINA.
If there is one source I can point to where I was first exposed to and led to me embracing my current “macro” understanding of “the markets”, it was reading TRH on Seeking Alpha.
I can remember reading some of your stuff and thinking, what a loon!
But then, I would reread and follow up with further reading and then more reading, as in books, not blogs.
Now, I mostly try to avoid getting into a discussion with most people on the subject of “how the world/markets work” because they are still stuck in viewing the world as it used to be.
As l tell my kids, figure out how the world actually works, not how you think it should work, and navigate a good life for yourself.
I agree and made that adjustment after some pain … In my case thanks to H’s exposure to Kevin Muir .. Gotta’ reprogram your brain to get there though…
“What a loon!”
That’s probably accurate in some contexts, but not as it relates to business or anything discussed in these pages. 🙂
H
Not a loon! “… You don’t need those … ” Because we have you to cut through the crap with virtually nothing to try to sell us — except a look into your brain. I’ll take that. And btw, I’ve had about enough of Bloomberg. Been a Business Week reader for 60 years but no renewal this time around.
Of course!
I have no idea who you are but if a late twenties girl on the beach could identify you, you must be someone with a well known past.
I literally owe the significant pivot I made in “how I view the greater financial world and even the world beyond that” to your writings.
It was a pretty big pivot. And now….I am a “T-Shirt wearing subscriber to TRH”!
Kocic has read Agamben, it seems. Pretty much explains current politics in many countries.
https://www1.cmc.edu/pages/faculty/LdelaDurantaye/Agambens_State_of_Exception.pdf
Way back in the early 1980s, when most of the baby boomers were just hitting their 30th birthdays, a lot of asset manager “strategists” like Harry Dent, Ken Dychwald, and Bob Froehlich made a lot of money riffing on the impact of demographics on the markets. I remember being offended by generalizations like “demographics is destiny” but you know what? For the most part, they were right. Innovations — some good, some bad — ramped up and we got the 18 year bull market. We got a mostly-growth economy driven as much by household — e.g. boomers — consumption. Fast forward to 2021, and the demographic set up feels the same. Millennials, roughly numbering 80 million in the US, are now just hitting their thirties. Innovations, some good, some worse than bad, are ramping up. Maybe something like Crypto or blockchain will be the millennials’ internet? BTW the demographic setup in emerging markets (with but even without China) is even more compelling. So maybe when today’s talking heads try to explain modern markets they underestimate, or completely ignore, how demographics might play out over the next twenty years. This is not meant to be a rose-colored glasses scenario, because there is a shitpot full of shit in the world. But the numbers are what the numbers
are.
+1
Global population estimated to grow from 8B to 11B before estimated to decline (absent world war, mass genocide, biological weapons/etc. or overwhelming pollution).
In spite of setbacks and uneven growth, the standard of living is increasing, globally, over the longer term.
Just wait until mankind figures out to produce safe, carbon free energy…..
I must say that I find this commentary on post-options expiration very informative. For me, it’s an underappreciated “side” of the market that is part of the puzzle as to why stocks/indices just seem to go up with no real concern of underlying valuations/risks. It’s not just retail investors blindly buying the dip as some mainstream financial news outlets profess. The door keeps opening, a little wider each time, to a potential for increased volatility which each options expiry, potentially leaving markets without a significant source of buying that has led to the recent bout of overall market stability. Whether this door remains open (if the deleveraging continues making large market swings a real possibility) or is once again closed (if the gamma “insulation” resumes thus suppressing volatility) is anyone’s guess. It could be just another case of “automatic/technical trading” in a low volume/poor liquidity market giving the BTD crowd, whoever they are, another opportunity. The “China backdrop” only adds to the complexity, making upcoming options expiry events very interesting and well worth following to see how it develops (or doesn’t).
H-Man, it is truly a mosh pit of crystal ball gazers when it comes to the markets. Probably wise to simply follow your crystal ball.
Go upstream a step or three. What causes investors to put on the options positions that compels the dealer hedging? At some point it has, I think, to be a expression of their macro and/or fundamental views.
If those change – let’s say, if GDP comes in -2%, if the PPI/CPI spread manifests in earnings misses and guidedowns, if Delta + AY starts a “Delta-prime” surge – or conversely, if CPI increases begin to slow, workers accelerate returning to the workforce, commodities and shipping charts roll over and ship processing times in LA/LB Ports starts falling from 6 to 4 and then 3 – there will definitely be market impact, and probably larger impact than we saw in Sept or in Oct MTD.
As you go more granular – sector, industry, company – fundamentals (which includes sentiment, expectations, etc) are going to play an increasingly large role in price action.
I think the shorter one’s time frame, and the further one is from individual stock investing, the more market structure has to be top of mind. The longer, and closer, the more fundamentals need to be in focus.
As for the BTD conditioning begat by a decade of Fed support and stabilization – I almost see that as a third thing, that everyone needs to consider – including considering what happens when it ends. Wait, that’s unthinkable (!) – how about when it goes on holiday.