mor·al haz·ard:
"lack of incentive to guard against risk where one is protected from its consequences"
Barron's June 24th, 2019
Easy Money Is Here Again
"The biggest thing is to fight the urge to get too bearish...You really have to stay appropriately bullish in the face of nothing but bad news.”
Meanwhile, everyone thinks that they alone will get out at the top. Which means they all have something else in common - they haven't thought it through that much. It was the exact same way at the top in 2007/2008. Rampant denial. Rampant bullshit. Followed by the shitting of bricks.
We've never seen this much volatility in a market that is trending higher:
I was reading NorthmanTrader's latest missive, and I found it altogether far too ambivalent. Clearly he is getting a tad frustrated by algo-driven Disney markets. Because as he states, if you "get it wrong", you get ridiculed. Having nominal audience and no comment section, I don't have that problem. As a certified perma-bear I have always made it clear that this would end with extreme dislocation. The fewer people who see it coming, the more extreme. Meaning, right now historically unprecedented shock and awe are forthcoming.
Looking at the above chart, and considering this year's fund (out) flows it's obvious that some smart people have figured this all out. They've been quietly exiting the casino all year. That does not mean there is a consensus among any cohort of investors on CNBS - far from it, mass confusion reigns supreme. It simply means that classic value investors are responding rationally to the risk:reward ratio amid the current profit collapse, and they are rebalancing accordingly. Seeking the best risk adjusted rate of return, which is no longer in stocks. These are people who despite having underperformed the market for a decade straight, still adhere to traditional investment discipline.
For example, the world's most famous value investor who is sitting on record cash and has been underperforming the market since 2008.
For example, the world's most famous value investor who is sitting on record cash and has been underperforming the market since 2008.
Berkshire Hathaway, Buffett's holding company, is light on Tech and heavy on economic cyclicals. It has not confirmed the recent market highs.
The problem is that the vast majority of do-it-yourself investors are on passive auto-pilot mode. And they have been brainwashed to never "time the market". Those are the people who yet again will get hurt the most. They are part of the "TINA" trade who have been convinced they will never retire if they don't keep most of their money in stocks. Hence, they are the ones pushing the bubble to unsustainable valuations in front of recession.
"Last year, the Trump administration abandoned a regulation designed to protect U.S. savers from conflicted investment advice. Known as the fiduciary rule, it would have required more brokers and insurance agents to disclose when they’re getting paid to steer people into certain investments. It also would have banned the sale of certain retirement products when they aren’t in savers’ “best interest.”
Sales of potentially questionable investment products have soared, and retirees stand to end up billions of dollars poorer."
Trillions poorer.
“Low-vol tends to perform the best when the economy is decelerating or contracting”
The rush by investors into low volatility ETFs has bid valuations of the underlying stocks above the broader market"
The Ponzi takeaway: Valuations don't matter
"As long as demand remains high for these stocks, valuations should remain high as well."
In other words, in this cycle the choice was to be an active trader by front-running the gullible into and out of asset bubbles. Bernie Madoff style. Or, be a classic value investor thereby missing out on a large portion of the market gains by exiting early. Or, be a typical zombie and ride the escalator up and the elevator right back down with advice from the usual psychopaths.
"Last year, the Trump administration abandoned a regulation designed to protect U.S. savers from conflicted investment advice. Known as the fiduciary rule, it would have required more brokers and insurance agents to disclose when they’re getting paid to steer people into certain investments. It also would have banned the sale of certain retirement products when they aren’t in savers’ “best interest.”
Sales of potentially questionable investment products have soared, and retirees stand to end up billions of dollars poorer."
Trillions poorer.
“Low-vol tends to perform the best when the economy is decelerating or contracting”
The rush by investors into low volatility ETFs has bid valuations of the underlying stocks above the broader market"
The Ponzi takeaway: Valuations don't matter
"As long as demand remains high for these stocks, valuations should remain high as well."
Or, be a perma-bear with adequate conviction and capital to outlast yet another irrational mega bubble. Third in two decades.
But ahead of the July 31st "all-important" Fed meeting, with gamblers lubed up to the maximum, what this all comes down to at the end of the day is very simple: can the Fed save the markets and the economy with only 2% dry powder and human history's largest asset bubble which is driven by the now ubiquitous belief that the Fed can save the market with only 2% dry powder?
The answer is no.
But you can't tell people that. I've tried. They're all going to get out at the top, ahead of everyone else.
"No one saw it coming"
