"Everyone (including ourselves) a "seller into strength" which means risk can squeeze higher short-term into policy events.... policy meetings increasingly seen as selling (not buying) catalyst, so selling pressure resumes if policy disappoints."
"... Rather than waiting to be stopped out of our position some 3+% higher we wish to cover the position immediately upon receipt of this commentary, taking a very small profit and refraining from taking a loss and living to fight another day and in the end succeed."
History is pretty clear. As long as earnings are deteriorating, you don’t want to be invested in stocks. As Charlie Munger once said: “I think that every time you see the word EBITDA, you should substitute the word ‘bullshit’ earnings.”
As has become increasingly obvious to many, unconventional central bank policies have resulted in an unprecedented level of crowding – a "herd mentality" to trade positioning on the basis of a similar theme – throughout global equity markets. UBS quant team guages the "barometric pressure of developing investment bubbles" across various factors and looks for the inflection points with the dollar, oil, and politics as the main catalysts.
After its well-timed call to exit the past week's short covering rally, GS Bank has followed up with a more disturbing thought: are we now back in February 2008?
What kept me from totally losing my heart was, yet again, the bond market. If animal spirits are alive, and the underlying fundamentals improving, how come bond yields are struggling to make even a dead-cat bounce?... It’s not just liquid and illiquid, but house money and rent money. Equities clearly fall into the former camp: chasing the latest news without caution. Bonds on the other hand are ignoring today’s emotions and asking what has fundamentally changed. And the answer they’ve settled on is "nothing"
The biggest question on all traders' minds will be whether the bear market short squeeze that sent the S&P higher by 130 points in 6 days, is finally over - with most global market rolling over and with US equity futures unable to find their solid early morning footing, it may finally be time to cash out of the bear market rally which so many predicted, and which GSBank yesterday may have top-ticked with perfection.
"After this nice rebound in equities, we are moving tactically cautious. Actions taken today: we moved to market neutral (long equities / short index futures) on our new Swiss Tactical Equity Certificate and have bought downside protection on the S&P500 in our portfolios."
As we detailed initially here, and followed here, there is a clear and present danger - no matter what the vareious Fed speakers say - that The Fed will be forced into negative rates sooner rather than later. The market appears to be losing complete faith in The Fed's current narrative as bets on NIRP have reached record levels - with 2017 now more likely than 2016 (QE first?).
"The world has never seen this and there is no one that knows the eventual consequences of this... This is desperation! The central banks have run out of ammunition and tools...all they have now is just talk."
The broad NYSE Composite stock market index is testing the level we deemed “must hold” – that broke in January.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
That didn’t take much. After a three-day rally, the media is back into “bullish” mode suggesting the bottom is likely in and by the end of this year, it’s all going to be just fine. Unfortunately, history suggests that after such a long unabated expansion risks are substantially higher than it has been previously. Furthermore, as I have repeated often in these missives, in an economy that is driven primarily based on consumption, and such consumption is already weak, it doesn’t take much to “flip the switch.”
The latest Lipper fund flow data is an and it is not pretty: in the latest week, there was $12.2 billion in equity outflows, the largest weekly redemption in 5 months and more importantly, this represents 7 straight weeks of outflows: the longest streak since 2008. However, offsetting this we just had the biggest 2-week gold inflow ($3.2bn) since May’10.
What negative interest rates are really projecting are low-to-no growth and zero-profit environments for the entire global economy sometime in the future, where businesses simply cannot make money. The implication of this is that all businesses will come to the government seeking subsidies. We already see it in agriculture. Education. Health care. Housing. Whether it is loan programs for customers or outright grants. There will be more. This is why capitalism cannot survive no growth. Economies would naturally revert to some form of subsistence, where the need to trade is reduced greatly.