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"How Would One Position For One Final Melt-Up On Wall Street"? - Here Is BofA's Answer
In the past month, now that stocks have stabilized on the hope, and at least one confirmation of easing by the ECB, BOJ, and PBOC and even the Fed, we have seen quite a few comparisons of the current market to that encountered during the post-LTCM bailout halcyon days of late 1998/early 1999. From Ice Farm Capital, to BofA, now that the early-2008 chart comparisons have taken an indefinite hiatus (at least temporarily), suddenly analogs to pre dot-com bubble mania are all the rage.
And sure enough, for the technicians out there all else equal, the following chart overlay screams Nasdaq at 6000 in 4-6 months.
This is how BofA summarizes it:
It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality.
Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between July-Oct 1998, when LTCM went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.
The 1998-2015 analogy, for what it’s worth, is working for the Nasdaq (see chart above), which is currently bouncing hard, and leading the rally, after an 18% plunge. (Although it is not yet working for biotech which is consolidating after a 35% crash).
So if this is merely a rerun of the well-known pre-dot com bubble episode, what should one be positioned? This is how BofA would trade the "final melt-up on Wall Street."
What worked back then? What rose from the rubble of 1998? How would one position for one final melt-up on Wall Street? Table 1 illustrates it was an “überbarbell” of über-growth stocks (e.g. internet) and über-value (e.g. EM/Russia) that significantly outperformed in 1998-99. Why? Because 1999 started as a year of “max liquidity, scarce growth & distressed value” and ended with an internet bubble causing a significant rise in interest rates, growth & inflation.
So far has certainly been so good, if not for the near record NYSE shorts: "The October “pain trade” has thus been a big rally in risk assets, as predicted (albeit too early) by all our contrarian trading rules flashing “buy” signals in early-Sept. The ECB, the PBoC, US tech EPS and the fact that too many were positioned for the “event”, the recession, the default, the plunge below the 50 boom-bust line in the world’s PMI, all have caused a big squeeze in risk assets in particular S&P 500 back through its key resistance level of 2060."
And yet, while suggesting the appropriate trade if this were indeed 1998/1999, BofA' Michael Hartnett isn't buying it, for two reasons.
The 1998/99 redux risk aside, we believe the Big Macro Picture remains one of “Deflationary Expansion”, and the Big Market Picture is the "End of Excess Liquidity" & the “End of Excess Profits” over the past 12-months. That’s why we would recommend investors sell into new upside in risk assets in Q4.
Ironically, while “liquidity” was the bull driver of risk appetite in recent years, in 2015 it is the perception of “illiquidity” in fixed income & equity markets that has become a driver of risk aversion. This perception has been abetted by a non-stop period of "pain trades."
Here is the three part answer to "what prevents us BofA from getting more bullish now that risk has rallied":
First, positioning is not bearish enough to generate new highs in risk assets and sustain new highs. Cash levels jumped in recent months but clients never went UW equities (although there were significant outflows from High Yield funds, in excess of 5% of AUM in recent weeks). And the consensus never made recession the base case. In addition, as noted in our latest Flow Show (link), a number of our Trading Rules are flipping from “buy” to “neutral”. The Global Breadth Rule, the EM Flow Trading Rule & the Global Flow Trading Rule have turned neutral in the past week, and while the FMS Cash Rule & the Bull & Bear Index reveal high cash and bearish cross-asset sentiment, both have turned in a less bearish direction (see page 8).
Second, policy. The Quantitative Failure narrative failed this week. The ECB’s promise of QE2 in December was met by a lower Euro, lower bond yields and higher bank stocks. Quantitative Failure requires a lower currency, lower bond yields and lower bank stocks, thus signaling investor revolt against the ability of central banks to raise growth expectations. (Note true QE-apocalypse would be higher bond yields and lower bank stocks).
However, the old script of “I’m so Bearish, I’m Bullish”, a script that worked like a charm between QE1 and the end of QE3, no longer cuts it. Investors will no longer be satisfied simply by Quantitative Easing. They require “Quantitative Success”, and a success that is visible in corporate profits. This risk rally cannot be sustained if Fed hikes and/or ECB/BoJ/PBoC easing causes the US dollar to rally strongly, thus setting off another “death spiral” in EM/commodities/energy/HY and fresh round of EPS downgrades.
Third, profits. The growth of global EPS is currently negative. And the level of global EPS is down 4.2% from its February 2015 highs. The classic strong “year-end” rally in stocks & credit requires EPS expectations to rise. Without EPS upside, Q4 risk gains will prove transitory.
BofA's conclusion, and why new all time highs are problematic here:
As explained above, new highs thus require:
- The Fed to hike, without…
- The dollar rallying significantly because…
- European/Japanese/Chinese domestic demand surprise on the upside.
That’s a tough ask.
Yes... but... all that would take to cover the "ask" is for some central bank to unexpectedly announce that it will proceed to buy an unlimited amount of stock. Because not even Bank of America seems to realize that a market crash, now that every.single.central.bank has gone all in on the asset reflation trade, failure is not an option, and money will fall out of helicopters before central banks admit defeat and allow a repeat of the 2008, with the S&P falling to its fair value, somehere just south of 500 (yes, that $60 trillion in newly created debt in the past 7 years rising to $200 trillion, means that without central bank support, the global equity tranche is now non-existent).
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How long can something obviously not work until you try something else? If I tried to run my business like the Fed runs theirs, I would have been fired and bankrupt long ago.
With an attitude like that we're going to have to ask you to leave.
Didn't you get the memo? "Everything is great!"
but it has been repeated countless time here at zh:
buy gold bitchez !
Well, if we are fortunate enough to get "one more spike up" in stocks (maybe bonds too?), then ride it... But, sell before too long.
"Always try to sell too soon." <-- my mangling someone else's saying
And like o.n. just wrote, make sure you have a nice pile of gold.
how? BTFD on 20oz tubes of generic phyzz silver Buffaloes as the Crimex monkeys continue to fuck w/ paper prices. Plain and fucking simple, bitchez. Same thing anyone in the know should have been doing for the last 4 fucking years.
Keep doing the same.
GSR is still at 73:1!!!!!
Say no more.
Just stack the Ag phyzz. Set-it-and-for-get-it!!! ;-)
2 shortsqueezes during option experiation that will happen untill december.
Then look as all the lemmings buy at the top with the christmass bonusses and sell in the frenzy.
Also, another note, a lot of short interest has been doubled down which could make the short squeezes even bigger. People should really look how trends work because this has been the most predictable outcome, the the most communicated one.
I might be becomming paranoid but it's so fucking weird how everybody has promoted the wrong trade. I see a serious conspiracy in all that crap.
"Excuse me, would you mind holding this bag for a moment? There's a good fellow." <BOOM!>
That why they keep trying
The trick seems to be doing exactly that. Just remember to pay yourself a HUGE salary on borrowed money before it all goes under.
Oh and don't forget to personally purchase the land/building(s)/equipment and rent it out to the business. Business goes broke, start a new one, get a loan, and pay yourself some more.
I don't get it. It has worked. The rich got a lot richer the last 6 years... so did the people that stayed long. The Fed did exactly what it was supposed to; keep the rich rich and screw the poors.
I'm moving to Neptune, think that's far enough from central bank recklessness?
Will viewers skip A&E’s ‘Buried Alive’ ratings stunt? Network plans to trap three people underground for live television eventhttp://tinyurl.com/otwlomh
If you move to Neptune you'll be able to see Uranus... ;-)
why do you have a currency printing press? Actually if you did what these central bankers are doing....YOU WOULD BE IN JAIL
This isn't rocket science. The FED is going to print more money.
This was old 3 years ago, and so were comments like "BTFD" or "The FED has to print"
And it will continue to be old. They're going to do it until diminishing returns rears its ugly head. Nobody seems able to predict the math (i.e. when it collapses). Everyone knows it will collapse.
Simply when the amount of buyers is lower than sellers. Considering no way to make money otherwise, except being an active capital investor, many keep a constant bid on US equities. Once the bigger money realizes everything is bled dry, the short selling will begin. But the big question is, who's going to buy that shit? Probably the same company that tried to short sell. It's hard to short a shitty market that keeps going up because of Fed money. You just have to wait until it runs out, or the Fed is told to stop.
Theres only so many shares to buy, at some point the FED owns all the shares - this can not happen, therefore there is a hard cap on the amount of shares they can directly buy with their funny money.
Now with loans I don't know, they might never stop giving out loans, but in case of you defaulting on your cheap loan they will own whatever asset you thought you had to buy on loan - probably stocks or real estate. This is the end game, the FED will own all the toxic assets, bought at the highest valuations ever directly from their banker buddies, and we the citizens are going to have to pay for it after all.
There are some behind the scenes changes of late.
The FRB changed their domain from
federalreserve.org to federalreserve.gov
And like JPMorgan have an ex-general, yes general on staff.
http://www.jpmorganchase.com/corporate/news/pr/general-odierno-appointed...
Coincidences ?
Since you brought this up, I'm a subscriber to Jim Willie. From his Oct. letter ..
In this same letter, Willie gives high praise to Dr. Preston James of Veterans Today and points to a most succinct article by Dr. James concerning the true nature of ISIS.
Dr. James had a 2 hour conversation with fellow VT editor Mike Harris. I provide that conversation in my archive. (Oct 22) Download it and skip to the last five minutes concering the 3 way military coup that has most probably occurred.
Mike Harris relayed to me, that on the day Ben Fulford released his news on the FED takeover, Fulford had a phone conversation with him that morning. Fulford is scheduled to be a guest of Mike's show possibly next week ..
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp
We could very well be seeing some Dr. Strangelove scenarios, complete with having to take down some Gen. Rippers .. (as in Breedlove et al)
Of course the real guys we need to take down include Cheney, Rumsfeld, and Daddy Bush ..
http://www.veteranstoday.com/2015/10/24/neo-americas-coalition-of-treach...
They are a few ex-military being hired at Morgan Stanley as well. Something is going on on Wall Street of late.
There are always ex-military and ex-spooks being discretely hired on Wall Street (and I'm not talking about shop front mannequins like Petraeus). It's been going on since at least Smedley Butler's days, and yet if you scroll through major bank personnel directories no one describes their job function as arms-sales-finance specialist, geo-political-recovery specialist, or regime-change-banking-advisory expert... (because its usually only a subset of their nominal and actual job function) and yet there are small cliques of Wall Street executives who could write their resumes exactly that way.
They are a few ex-military being 'hired' at Morgan Stanley as well. Something is going on on Wall Street of late.
You won't find the answers in the past. That's a sure bet to lose money.
Markets have never been force fed and digital like they are now.
Gandhi
The markets are not being fed digital. It is paper!!!
When the Fed creates new money to buy 'troubled' assets or treasuries they create digits in accounts at the Fed. Theses accounts are a committment to print cash upon request. Just because it is not paper yet does not mean it is like credit money that can be made to disappear. This is the stuff hyperinflation is made of. The Fed takes what was just an inflated asset and makes it into real M0 cash....the good stuff...power money.
I think he was talking about HFTs and dark pools more than whether or not the Fed's typhoon affects money velocity.
This. Any comparisons to prior market periods are invalid when you're staring this in the face.
https://research.stlouisfed.org/fred2/series/M1
Buy moar QQQ, check.
Why didn't you tell this in 2011?
Because it's immoral/unethical to profit off of corruption?
http://news.investors.com/102515-777153-double-digit-earnings-declines-s...
This has to be very bullish.
Never sell Shell, as they say.
cee sells she shells down by the cee shore
or something like that
She sells sea shells on the sea shore!!!
cici shorts sea shell shares at the sea shore
Bull Shit
Albeit.' Dennis Gartman' [ contra trader extraordinaire] has been reading Z/H as of late.
He's probably and upped his daily dosage of ritalin and single malt.
P/E ratios are actually slightly above previous equity highs, because of revenue drops.
2007 was a basic fission device. 2016 is the Hydrogen/ fission device.
How do you hedge?
Don't play in the casino, but keep yourself well educated. The assets that are overpriced, are going to lead you to other assets that aren't over priced.
Houses are expensive, but quality lumber isn't.
Ah, brilliant! Buy up lumber to resell to those looking to board-up all the buildings that are going to empty out!
I disagree.
I agree.
I agree to disagree with disagree I agree..agreed.
That's an option. Options= value. Value= damand. [The time/decay thing, reversed]
You're an extremely smart individual, and one of the reasons I continue to read Z/H.
This is *not* like 1999. My 90 year-old mother, despite my best efforts to dissuade her, was in that market and she was not alone among my friends and relatives. In fact, I was probably the one who was alone because I was all the way out and dodged that crash. I was buying gold.
I overheard stock boys, the kind that work in grocery stores, bragging about their market adventures. I bought a piece of bubble gum, the only piece of gum I've bought since childhood. It was a dime, not a penny...the cartoon inside was a joke about the stock market. That 2000 crash was the end result of a classic market mania.
Today's market is nothing like that market. This market is a rigged government/central bank controlled market. Just my opinion and my opinions have been costing me money, of late, so take them for what they're worth.
You mean that the problems aren't because we're running on PURE fiat? Silly me, I kind of thought that things were totally "rigged" at that point (and that was the penultimate "rigging").
Ding ding ding. A put of last resort, whether made by Greenspan or Bernanke, is still the invisible hand probing the markets ass.
Corporations themselves, via buybacks, are the new stock boys and grandmas. Sovereign wealth funds are the new stock boys and grandmas. Joe Sixpack will leverage his newfound home equity, come in at the very end, and buy all their crap the day before collapse.
I speculated quite a while back, when the buy-backs were starting to be noticed, that I felt that corporations were effectively removing the claws of Wall Street from their businesses in order to get better control/accountability on a business level rather than a casino/wagering level.
While much of the gains are at the expense of the workforce (layoffs), figure that it was going to happen no matter what.
Riddle me this, how can a company IPO say 100 shares at 1 million market cap, buy back half of those at (QE-inflated) 2 million market cap, and expect to make a profit in the end? You effectively used all the IPO proceeds to buy back half the shares you sold. So your IPO was off by 100% and you believe current stock valuation to be fair? I should become CEO...
i took my mother out of that 99 market, her broker laughed. the charts were rolling over. its not quite as obvious now because the fed has the back of stock owners. no one believes the charts now and neither do i. the point then was that you could go into 20yr bonds at 5%, i didnt my bad
When my late Father-in-law retired, he asked my advice. I said I'd help him, but I said he could not cherry-pick my advice because if he did that, he'd want to avoid my best idea and load up on my worst idea. So, I tried to get him to load up on Five-Year Treasuries at 8% in the late 1990's and he said no. Later, I tried to get him to load up on EE savings bonds before the minimum yield dropped below 6% and he said no. So I told him I couldn't help him, anymore. He went to a broker who put him into stocks and bonds. Stocks crashed and one of the corporate bonds defaulted and went into bankruptcy. Then, after all that, he asked me to help him, again...still did not like my advice. I told him real estate was going to crash and he turned around and bought two condos in Florida. I told my mother the same thing and she bought two time shares. You simply cannot save people from themselves.
You can save people. But you cannot save father in laws.
That is the unwritten law. They never trust son-inlaw.
You are not alone.
I warned mine in 2001 and in 2008, but no one listened and they are now just getting toward "Even", but with inflation in the real cost of living; they are behind.
"You simply cannot save people from themselves." That is the message of the true Christian (most are not); we can only give the good news predicated upon the bad news and no amount of persuasion and evidence will change a heart; that is the work of God. We are called to warn and to proclaim and beg people to repent and to believe that Christ is the savior, the Lord and the Judge of All people and all are already judged guilty because He is the standard and no one is like Him.
Isn't it all about CB "credibility"? And isn't CB credibility waning? If they do the helicopter drop, won't their remaining credibilty(if any) dry up? And then we have classic hyperflation in real assets? Deflation in paper?
Just asking because I'm not as smart as some of you.
hairball
Enough already, can we get this fucking shit over with?!?
RELEASE THE HOUNDS, ALREADY!
The only hounds left to let slip at this point are the dogs of war.
Massive stock buying by the Federal Reserve this week. The Fed is getting desperate to prevent stocks from crashing, given all the bad economic data.
As I said recently, ALL real-world evidence indicates everything the central banks have done has destroyed the world economy.
However, by creating endless fiat debt the central banks can manipulate stocks and bonds higher (and with some helpful self-serving lies by false government statistics, also pretend unemployment is going lower).
And so, the central banksters AND governments will have their partners in mainstream media direct attention to the manipulated bond and stock markets... and ignore the horrific economic destruction happening in the real, physical world.
What would anyone expect? They'll manipulate what they CAN manipulate by directing unlimited fiat where they can, and ignore everything they can't. Which is the classic formula for a bubble.
Or in this case, a super-duper-bubble... one in which reality is headed down the tubes at the same time the fake non-market indices soar.
So the predators-that-be may well wipe out every prudent "investor" who attempts to bet/invest based upon real data... before the collapse of the physical economy collapses everything else, including the non-markets (bonds and stocks).
QE4++ is definitely already underway, whether ever admitted or not.
If so, when this sucker blows, the crater will be enormous.
Of course, they'll probably start global nuclear war to attempt to hide what they've done, because the predators-that-be have absolutely zero scruples whatsoever.
It took a long time, but it looks like Peru's economy is starting to roll over. Our sales there (October) are down over 30%, ouch.
The bad effects from China's slowdown finally got there after devastating Brazil.
It's getting harder to hide unless you take rather extreme steps, as honestann apparently has. Gold preparations are a start...
They don't even try to hide anything anymore; even my 84 year old father-in-law who is a LT investor now recognizes the markets are upheld by the BIS & affiliates (i.e. FED, BOJ, POBC, & ECU). The neighbor next door recognizes it, but just takes the attitude that the worse will not come. Complacency comes upon a people who only seek a righteousness they define for themselves, even if it is based on lies and never on reality.
At least ONE of those Organised Crime Syndicates (Banks) will have to be sacraficed to save the Herd for the main event. It won't be JPM or GS, that only leaves CITI , BOA or Wells. My picks CITI then BOA.
The Herd will not be saved. The sheep were sheared over the Growth Phase from Bretton Woods to 2008. The Herd is now being skinned during the Asset Stripping Phase. The Liquidation Phase (War) will begin soon. After the land is cleared, new credit will be issued by the Owners to rebuild the Farm.
it's People Farming. It's a cycle.
Well-marbled, free-range human.
I've been having a gay ol time buying puts on VXX every week. Keep this shit going, I don't care.
The inverse trade is smart. Just hedge yourself.
No -one could "get a fill" during the last pandemonium, because liquidity was artificial.
Kinda like a bull shit statement from some voting Federal Reserve Governer, in the middle of the night.
SUCK MY COCK YOU RISK ON COCKSUCKERS!!!!!!!!!!!!!!!!!!!!!!!!
All I want for christmas is EUR/USD parity.
All I want for Christmas is Lloyd Blankfein to choke on his gefilte fish.
Or any of a variety of short peptides that might cause his nervous system to cease functioning for a bit.
Put it all on #22. "Honest as the day is long!"
No worries. The un-audited Federal Reserve will step in and buy stocks through their primary dealer banks. That is what has been happening on a daily basis now in order to prevent a stock market collapse.
Here is my proof the Fed buys stocks. https://youtu.be/mXmNpdYpfnk
Careful I was called a conspiracy theorist on Yahoo finance a few years ago for saying the Fed buys stocks to prop up the market through primary dealers.
Then they said, "Whi fucking cares as long as stocks go up."
Funny, a small group of unelected central bankers meet in secret... but you can't call it a conspiracy. That would be craaazy talk.
why I love zerohedge:
there have already been a bazillion melt-ups on Wall Street and no doubt there will be a bazillion moar.
As a matter of fact I predict the trading range of the DJIA will soon move from 17k - 18k to 18k - 19k.
IT'S WALL STREET, DUDES, QUIT ACTING SHOCKED.
Helicopter drops will only increase the debt to value ratio unless the money is free...
Even if you could prove Helicopter drops like QE would fail the lack of any other economic tool other than trying to hide debt means ... They will continue.
For central banks to do nothing shows their lack of competence in economic matters.
Yes... but... all that would take to cover the "ask" is for some central bank to unexpectedly announce that it will proceed to buy an unlimited amount of stock.
Got it right, in one, and at last. The Triumph of the Fed.
That announcement came in 2012; the Central Banks have been buying and buying all kinds of "assets", including stocks for nothing and why not since counterfeiting is legal in their reality and is prison time in our reality. We all approve by our participation in our sin of materialism. We no longer value truth and are not even able to be honest so that we would see the truth and reality of our falleness.
This market gyrates up and down with incremental uptrend until it is the only players left are the Central Banks & affiliates, then it ends and we are at war and more war.
It's not a surprise to find very widespread commodities pessimism and 'imminent crash' scenarios. Gold bullion futures are advancing towards backwardation in the meanwhile.
http://quotes.ino.com/charting/index.html?s=NYMEX_GC.Z15_M21.E&t=l&a=0&w...
thanks to forethought and planning before i retired, i don't need to participate in any run-ups or run-downs. i merely spectate and wait for what appears to be a bottom in any type of market. if it doesn't happen, nothing lost. if it does, then my nieces and nephews will get moar after i croak
“…Much ado about nothing…”. If today’s markets responded, without total government/central bank interference longer term charts would look far different than they do. So as I have done for years I set my support and resistance levels and let price decide my long or short. No amount of BS will over ride price…
It's already here!
Or, if you're having a little trouble getting moving this Morning...
It's already here!
Nasdaq 10000....nothing to stop them from rigging the market higher...all honesty is gone