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From Melt-Up To Bubble Watch
It's fair to say the melt-up materialized.
That'd be the equity melt-up I spent the better of May a
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Now what?
Good boring hopefully
Many old-timers continue to cling to the notion that if “valuations” continue to get further stretched selling will eventually follow. Based on long discredited rules of investing. Look at value versus growth in this century.
I have little trust in this rally but have to ask myself what can (not will) turn stocks lower. The only factor I see is increased share or bond sales from foreign investors which just might tip the vol-driven algo models. The bond market’s tepid reaction to Trump’s endorsement of a weaker dollar this morning is making me rethink that as well.
Yet I am bothered that the $115 BILLION of buying flagged by McElligott and Rubner has not proven to be even more of an accelerant? WHO is selling into this?? Might it be foreigners?
If it is one or a few whales offloading shares, the skillful execution points to one or more sovereign wealth funds. There’s an art to unloading large positions without panicking the markets.
Could just be selling from overwriters stuffed on gargantuan amounts of calls from buy-write ETFs. You mentioned McElligott, and the last update from him (by which I mean the last update about him written here, I don’t receive his notes) suggested we’re deep in +gamma territory.
Could be, but the size being moved suggests otherwise. Most dealers run a matched book with dynamic hedging on a daily or shorter basis.
Especially in this environment. But I’m not deeply involved in that world anymore.
Inflation caused by currency debasement from printing lots of USD’s has been given a “green light” for the long term. The BBB cemented that; spending in excess of taxes collected will be occurring regardless of which party is in office. No more Republicans wanting a balanced budget! Also, the USA will be printing USD’s at a far faster pace than the pace of economic growth.
Therefore, in times of inflation caused by currency debasement (as opposed to inflation originating from supply/demand imbalances), what would I want to own?
At the top of my list would be equities and real estate in drop dead geographically gorgeous/ supply constrained locations.
Really not bonds. Even Mr. Lucky is worried about people who put their retirement savings in long term bonds.
Even the real estate is getting to be an issue. As the owner of some property in a drop dead geographically gorgeous/supply constrained location, we are looking to sell because insurance coverage is becoming very difficult to obtain and very expensive and this is for a non-California, non-coastal area. I am pretty much down to widely diversified equities.
I am more worried about localities prohibiting short term rentals.
“At the top of my list would be equities and real estate in drop dead geographically gorgeous/ supply constrained locations” – having just come back from a trip to Switzerland , I do believe that country fits your description perfectly
Sure feels like we’re not in Kansas anymore. Will the masses wakeup when the next Executive Order ordains all citizens must register with the Lollypop Guild. Apparently suggesting the Kennedy Center become The First Lady Melania Center didn’t even make a dent.
Vol strategy funds are at ~55% allocation with head room to 70%. Summer volume is super low, with ES futures reaching only 700000 contracts yesterday. That’s half the normal 1.4m. Vols are still compressing. Earnings appear to be fine with profits appearing healthy and pricing power unperturbed thus far.
The tariff taxes on US consumers has only begun to show in the numbers. Bong vigilantes remain vigilant but still holding back. Now there’s additional demand for US notes and treasuries as crypto stable coins load up on “riskless” bonds to lever their newly legal threats to the financial system. That crypto is now tethered to US debt certainly will raise eyebrows at coin vol pass through to legacy instruments.
I think it will take more time for these still fresh government actions to actually hit markets. And the current administration only cares about how they will personally gain and will abandon the despised government to the bail the system out and failure when it’s time to laugh it all off as a great con at a resort in Malta.
Watch the consumer and margins, as H has pointed out. Meanwhile, enjoy getting wealthier. It’s your only protect from tyranny.
Do you mean their equity allocation is capped at 70%?
Bong vigilante… ? That was me once!
Thanks, H, for helping us navigate the treacherous waters between Scylla and Charybdis. Your analysis and insight have been particularly helpful during these tumultuous times. (Not meant as advice, freeze or refrigerate before expiration, not to be used as a children’s toy)
Is it a known fact that vol target strategies use 3 months look back instead of exponential moving average?