mor·al haz·ard
"lack of incentive to guard against risk where one is protected from its consequences"
We are watching a 1987-style waterfall crash in real-time
This week saw the heaviest selling pressure in several years. The Dow is testing the 200 day from the underside:
This week saw the heaviest selling pressure in several years. The Dow is testing the 200 day from the underside:
Comparisons to May and October need not apply, as gamblers have been seeking shelter in the junkiest stocks:
Crash risk reached a new extreme this week:
Nomura is out warning that risks have increased since last week's Lehman-meltdown warning:
ZH: Odds Of September Lehman Shock Have Increased
Why September? The argument is around seasonality, which I find unconvincing at a time when idiosyncratic risk is exploding in broad daylight.
They note that algo positioning is still bullish across the board. Because apparently Skynet doesn't have social mood.
Where it gets interesting is that despite the risks, Nomura still recommends overweight in the "defensive/low vol" bond proxy trade - the most crowded trade this side of Momentum Tech. Both being "long duration" deflation trades. As in, extrapolate the recent past into the indefinite future and pretend recessions no longer exist.
Which is Wall Street's massively crowded consensus trade now:
"Buy low-beta & defensive stocks, sell high-beta & cyclical stocks"
Sell Banks, Transports, Retail, Autos, Industrials, Energy aka. "Economy"
"Buy"
"Low-volatility funds are proving popular as many cautious investors keep preparing for a still-unseen, but long-anticipated, market downturn"
“Trying to call the market is generally a bad idea.”
I would point out that these are not really safe havens since they were down -45% peak to trough in the last bear market. I would also point out that they are also not really low volatility:
Why hedge when central banks can fix everything after-the-fact? An imagined reality that didn't pan out so well in 2008:
Gamble at your own risk
And remember, the dumb money should never try to time the market, because then the smart money would have no one to sell to:
ZH: Mass Confusion Reigns Supreme
"Markets are super noisy and jerky right now. Yield panic, recession concerns, headlines and tweets bringing about massive price swings in any direction. It can spin anyone’s head."
"He rocks in the tree-top all the day long
Hoppin' and a-boppin' and a-singin' his song
All the little birds on Jay Bird Street
Love to hear the robin go tweet tweet tweet"
