This day was inevitable, when well-trained monkeys would believe that ludicrous amounts of risk is "bullish". Because everyone knows that printing money is the secret to effortless wealth...
"Bad news is cheered. Good news makes investors nervous. Welcome to Wall Street."
As we see, being a "perma-bear" just became that much harder now that epic levels of bad news is construed as bullish. It's hard to have a viewership when everyone is expecting stock tips.
It's no one's job to predict when this party is over. On the contrary, it's most people's job to predict it will never end. 18 months ago, no one saw VolPlosion coming. After that crash, risks grew as the trade war started. Nevertheless, U.S. markets rallied as the rest of the world diverged. Markets crashed in the fourth quarter. Yet again, "no one saw it coming".
Since the fourth quarter of last year, risks have grown to asinine proportions. Global growth has slowed, U.S. growth has slowed, the trade war has escalated, earnings are imploding, breadth is more divergent now than then, deflation is rising, a massive rotation to bonds, recession stocks rallying. The only difference between now and the last time the wheels came off the bus, is now the Fed is easing. This is all solely about easy money.
The operating assumption right now, as explained by Zerohedge and believed by the entire financial universe, with few exceptions, is that this is a "soft patch", which is why falling interest rates is bullish. We are now in the midst of a melt-up bubble" in progress.
"Fed easing during past soft patches has resulted in substantial valuation-driven equity rallies"
"We believe that the mini-bubble melt-up scenario is most likely"
There are two problems with the melt-up hypothesis right now, first off the fact that markets have been rallying for seven months straight and are up 28% since the December low. In other words, well-trained gamblers have been front-running "Fed easing leading to rallies". More to the point, the S&P price target Barclays laid out last Wednesday (3000) has already been reached. Minor detail.
And of course, the second problem with the melt-up hypothesis is that it presumes this is merely a "soft patch" and not the end of the cycle. You have to go back twenty years to 1998 to find a pre-emptive interest rate cut that was "bullish". In the interim, there were two declines of 50+% following rate cuts. In other words, this is Wall Street data mining at its finest. And the stakes have never been higher.
As flimsy as this latest narrative may be, it of course now has lock solid adherence, under the premise that "there is no alternative" to asinine risk-taking:
NY Times Article:
"When the Fed starts cutting rates, stocks typically rally for the year that follows...the S&P 500 gained about 14 percent on average the year after the Fed’s first cut"
NY Times Article:
"When the Fed starts cutting rates, stocks typically rally for the year that follows...the S&P 500 gained about 14 percent on average the year after the Fed’s first cut"
The S&P has already gained twice the historical average prior to this rate cut.
"The Fed “is the factor...If you don’t have organic earnings growth and improving balance sheets, what else is going to drive prices?”
Easy money
