In US Equities: Regime Change Or Positioning Squeeze?

5 thoughts on “In US Equities: Regime Change Or Positioning Squeeze?”

1. I took a small position in TNA about a month ago when Charlie alluded to a crash up in small caps. Cashed out this morning for a 34% gain. It’s up even more now, but I’m not much into trading. It was fun, thanks for the cheese.

2. Small caps are disproportionately affected by higher interest rates vs big tech/large caps. So perhaps one reason for the outperformance may be the expectation that they will benefit more from the expected lower rates. Probably insufficient to explain the whole move but may be a factor.

   1. Well yeah, that’s plainly the ostensible rationale, but the notion that 50bps of rate cuts between now and January is good for 1,000bps of outperformance in four sessions is ludicrous. This is a squeeze.

3. This is the sort of analysis that has paid for my Heisenberg Report subscription over and over. I just don’t find it anywhere else in the financial media. It gives me the sort of information that improves my trading by separating the market hype that I am bombarded with daily from objective reality. I do wonder from time to time if H and Charlie McElligott are the same person – ala Batman and Bruce Wayne.

   1. This reminds me of Gallagher Bellucci. Do any Plus subscribers remember Gallagher Bellucci? From the Weekly on December 30?

      I’m reprinting that entire Weekly below because it’s funny as hell. Especially in light of recent personnel decisions on the sell-side and especially if you’re a “Groundhog Day” fan.

      Enjoy.

      Weekly: Celebrities in emergencies
      Saturday, December 30, 2023

      Don’t you have some kind of a line that you keep open for emergencies or for celebrities? I’m both. I’m a celebrity in an emergency. — Phil Connors

      I’m not sure when it started, and whenever it did, it wasn’t likely the result of any producorial epiphany or overnight, editorial sea change. But over the past two or so decades, the financial media in America began to treat sell-side analysts as minor celebrities and, more to the point, their calls as news.

      From a business perspective, it makes sense. If people will take stock tips from shoeshine boys, they’ll surely suffer through five minutes of commercials if the next segment promises to reveal why a major firm thinks XYZ stock could double. Or toss a few dollars at a website subscription to read the short version of some bank’s bull call on Tesla. And so on.

      Whatever banks’ rationale for publicizing their research via major financial media outlets, the incentive for those outlets is straightforward: Bank research is eminently monetizable. As news.

      Outside of world-altering events, there’s no objective definition of “news.” News is a just another product. And you’re just a consumer. No matter what a given media outlet says about its “principles,” the overriding concern for the vast majority of producers and editors when it’s time to decide what’s news and what isn’t is the profit motive. That’s why the two Sams (Bankman-Fried and Altman) regularly beat out that day’s developments in Ukraine for space above the digital fold in 2023.

      Happily for everyone involved, world-altering events make for compelling reading (or at least when they initially occur), and are thereby conducive to a lot of web traffic and subscriptions, which is to say the profit motive aligns with actual news when the situation is urgent and the stakes are highest. The same could be said of great investigative journalism: The profit motive and the duty to inform can align.

      But on days when there’s no real news, the job of editors and producers is to create it. News, I mean. For the financial media, sell-side research is a veritable godsend in that regard — a wellspring of otherwise mind-numbing drudgery just waiting to be Cinderella pumpkin coach-ed into news.

      Over the years, the editorial alchemy that transformed B-school exercises into headlines took up an ever larger share of space across the financial pages. The practice also shifted away from banks’ individual stock calls to focus on predictions about entire asset classes as well as macroeconomic forecasts. Today, perusing the financial pages is to browse a compendium of such predictions and forecasts. In some cases, the names of the strategists and economists take precedence over the names of their employers.

      For strategists, celebrification is a double-edged sword. This isn’t necessarily a case where all publicity is good publicity. One of Bloomberg’s feature stories over the long New Year’s weekend was “Wall Street Missed the Great Stock Rally of 2023.” It names names. There’s a photo collage of Goldman’s Kamakshya Trivedi, BofA’s Meghan Swiber and, of course, Morgan Stanley’s Mike Wilson who Bloomberg, without so much as a hint of irony or self-reflection, described as “the public face of the bears.”

      The point of the linked article was to underline how wrong some “high-profile analysts” were in 2023 about stocks, Treasurys and also China. The sell-side, Bloomberg said, ended the year “in a very uncomfortable position with investors across the world who pay for their opinions and advice.”

      Of course, far more “investors across the world” pay Bloomberg for the sell-side’s “opinions and advice” than pay the sell-side itself. That’s not how Bloomberg would tell it. They’d say they’re just reporting the “news.” But a Mike Wilson note isn’t news until Bloomberg decides it is. And it’s fair to suggest that Wilson (and a lot of other strategists whose names you know) are swept up in their own celebrification.

      I have no doubt that Wilson, Michael Hartnett and all the rest, are remarkable people. More remarkable than me probably, and better human beings definitely. But if I’m honest, I doubt seriously the idea that their capacity to accurately forecast financial assets, let alone macroeconomic developments, is any better than anyone else’s who’s interested in markets and reasonably well informed about them.

      Bloomberg wrote, of Wilson, that when 2023 dawned, “the bearish stock strategist was rapidly becoming a market darling.” There was no acknowledgement — none — that the phenomenon of celebrity sell-side strategists is almost solely attributable to the financial media and a handful of alternative portals.

      I’ve witnessed, first hand, the psychological effects of this dynamic both on sell-side strategists themselves and on everyday investors.

      “I liked it better when everyone worshipped Marko,” one bitter quant at a top five bank told me in early 2019, when Charlie McElligott (who isn’t even on the research side, by the way) began to grab what this person viewed as a disproportionate share of headlines.

      “Can you start using analysts’ names in headlines again?” a reader asked, urgently, during March’s banking sector chaos. “It makes it easier for me to know what to read first.” “You poor bastard,” I thought, but didn’t say.

      This celebrity culture is just like any other. People get tired of yesterday’s celebrities and they want new ones. The mainstream financial media sometimes looks to alternative portals for guidance in that regard, and alternative portals, like the paparazzi they are, tend to leverage their speed advantage (they’re not encumbered by superfluous editorial layers) to scoop major outlets when the new star pushes out a note.

      If, on some random market day in 2024, I run a headline that says, “Gallagher Bellucci Warns Of Imminent Risk Parity Unwind,” a handful of editors and a couple of cross-asset reporters will spend the next half hour trying to figure out who Gallagher Bellucci is. If he were real (he’s not), and stocks and bonds subsequently sold off simultaneously, Gallagher Bellucci would be famous in market circles overnight.

      Once his celebrity was sufficiently established, media headlines would just use his last name: “Selloff Likely Exacerbated By Fast-Money Quants: Bellucci” And internal chats at click-chasing blogs would light up whenever Gallagher blessed the market: “New Bellucci! Who can cover? Need to get this up before Bloomberg.”

      I wonder what Mike Wilson is thinking today, looking at an S&P 500 that’s nearly 1,000 points above his 2023 year-end target, and staring at what may feel like a bitter editorial betrayal from a previously ingratiating financial media.

      “I make the weather!” — Phil Connors