What happens when the five largest and most overowned companies in the entire casino all lose their bid at the same time? We're about to find out, because growth stocks can no longer be owned in a "rising rate" fake reflationary environment...
"Everybody out of the pool"
First, recall that the FAAMG (Facebook, Amazon, Apple, Microsoft, Google) stocks have been the primary drivers behind year-to-date performance in the major averages, and hence the primary recipients of passive ETF inflows. Those record inflows artificially suppressed volatility via the 'BTFD' herd mentality, generating a false sense of security among investors. However, now it's all going in reverse:
"We believe low realized volatility can potentially lead people to underestimate the risks inherent in these businesses"
"The fear is that if fundamental events cause volatility to rise, these same passive vehicles will sell and exacerbate downside volatility"
Global Central Banks have accelerated the outflow from the deflation trade back to the fake reflation trade:
"The prospect of four of the world’s five largest central banks moving to tighten policy at the same time is shocking traders after years of easing"
July 3rd, Washington Post:
Unfortunately Trumpflation Is A Figment Of the Imagination
"Now, as he approaches the six-month marker of his presidency, Trump faces several new warning signs that key areas of the economy could be losing steam, including in industries he specifically promised to revitalize"
"there is a sense of “pessimism fatigue . . . There’s a sense where, it’s not fantastic, but this may be as good as it gets, so let’s celebrate mediocrity”
Note the difference between now and the post-election rally - back then, Tech kept on trucking higher, so when the fake reflation trade imploded, the market was supported:
With respect to my Financial Instability hypothesis, all of the major exchanges were made into for-profit entities during the past decade and a half. So now their only goal is to increase high frequency trading revenues. Creating stable markets is no longer their primary mandate. We've had a few tastes of what that means during the past several years, but nothing that has led to any regulatory change.
And why would it when it's been so accretive to exchange profits?
NYSE holding company:
Nasdaq holding company
Now we're going to find out what happens when Central Banks remove liquidity, machines remove liquidity, and passive investors remove liquidity from the casino, all at the same time, at the very end of the cycle.
"The fear is that if fundamental events cause volatility to rise, these same passive vehicles will sell and exacerbate downside volatility"
The "event" is called "Sell"
"Leave me alone, I'm celebrating mediocrity"
