"Risk Appetite" Indicator Hits All Time High As World Stocks Have Longest Ever Streak Without 5% Correction

Over the weekend we showed  that while the US stock market has smashed virtually all records, some still remain: one is that while the S&P is rapidly approaching 400 days without a 5% correction, it still has several days to go before it breaches the 409 consecutive day record set on August 3, 1959.

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Seen another way, major US indexes haven’t been more than 5% from a 52-week high for nearly 400 days, another record which will be breached in just a few days.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180106_streak.png

Yet while equities may be on the cusp of record stretches without a correction in the US, in world markets these records are already in the history books. The reason for this, as Goldman explains in a note released today, is that global risk appetite for stocks has just hit an all time high.

So far this year, risk appetite has picked up materially (Exhibit 17), nearing its all-time high, led by equities (Exhibit 18), which have rallied across regions, the most in Asia and EM.

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The underperformance of "safer" low vol stocks has also become pronounced. Credit total returns have been positive, in particular high yield, notwithstanding bonds selling off. Cross-asset volatility has fallen back to near its lowest levels, with equity skew also declining sharply.

What explains this unprecedented demand for risk with the market "screamingly overbought", at record high valuations, and at at a time when investors have seemingly forgotten how to sell? Well, as the following two charts show, traders no longer fear selloffs for the simple, if circular, reason that stocks simply do not sell off.

Which brings us to the first record: the MSCI World index is currently at its longest streak in history without a 5% correction...

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... while, for record number two, we have the MSCI EM which is at its longest streak in history without a 10% correction.

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Is Goldman concerned by this record stretch without any sharp declines? Not really.

While we think equity correction risk in 2018 is high after a strong rally and at high valuations, we also think an equity bear market is unlikely given the supportive macro backdrop.

And why should it be concerned? As we first showed on Friday when the 2012 Fed transcripts were released to the public, both Goldman and retail investors have little to fear because as none other than the next Fed chair admitted, it is the Fed itself that is now "encouraging risk-taking":

I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.

"Almost"... just as one can "almost" see this whole experiment in central planning having a happy ending.

Comments

Element overbet Mon, 01/08/2018 - 23:26 Permalink

 

 

This time is different ... NOT. A good and concise reminder of the dynamic in play, was penned by Ed Harrison .. about ~9 years ago ... and the shit still has not hit the fan .. but it inescapably and surely will.

 

12/04/2009 07:37 pm ET

Updated Dec 06, 2017

 

A Minsky moment: How financial stability creates instability

By Edward Harrison

 

This article originally appeared on my site Credit Writedowns

 

Below are three videos from a talk at the 2009 Economics of Peace Conference in Sonoma, CA, where James Galbraith talks about the Hyman Minsky concept of the instability of stability. This concept is fundamental to the behavioural psychology behind capitalist systems. This is a case where stability invites greater risk-taking and eventually creates instability. He sees the latest episode of financial crisis as a Minsky moment predicated on ‘Ponzi’-style debt pyramiding that is the end game in the cycle of stability to instability as it was post-1929.

My view is that a lack of regulatory oversight allowed the system to veer away from macro-prudential finance. This is not a case of Madoff-style fraud with everyone in finance cooking up schemes to defraud homeowners. Yes, these cases of predatory lending existed. However, I see the systemic risk as more pertinent.

Systemically-speaking, the Ponzi phase is one of risky behaviour crowding out prudent behaviour in a world free of regulatory controls. If risky behaviour is temporarily rewarded with profit and this temporary period is long enough, then risky behaviour wins and drives out good behaviour.

In the last few years - even the last few decades, financial interests have used the lack of regulatory controls and increased access to political power to profit using risky financial instruments. They have done so by creating a byzantine maze of Ponzi-style debt schemes [i.e. SCAMS] (think CDOS levered on mortgage-backed securities or credit default swaps). I consider this looting as it represents a transfer of income. Galbraith calls this the Predator State.

How one deals with the intrinsic instability of capitalist system coupled with the increasing political power of special interests is the fundamental question. The natural tendency toward greater risk in a stable macro environment is toxic when coupled with lax regulatory oversight and crony capitalism. Bailing out the system without punishing the fraud while permitting risky actors and their investors to escape the full consequences of their behaviour is a moral hazard. This invites more of the same in future.

[Now kiddies ... seriously ... what does Dr. Phil always say about enabling bad child behaviour, via the parents paying for the acting-out children, and letting them off, without any serious consequences, or stern hard-line real-world punishment for repeated shitty actions, and abysmal attitudes, and acting-out as though they are the victims of their own failures to take responsibility for themselves and their despicable actions that harm others and create disorder and chaos? ... huh??? ... duh? ... gee?! ... idunno! ... really? ... in truth, any fuckwit could work this out, it isn't even tricky ... don't reward bad behaviour, or else your home and your life will be destroyed ... well - Duuhhh!]

As for the present day, Galbraith talks about government as the cushion between us and Depression. I see this as an accurate view. Whether this is the advisable way forward (i.e. should we take the pain now?) [NOPE!], depends on your view on government’s role in the economy. I believe that citizens’ witnessing yet more crony capitalism in this depressionary environment will almost certainly induce ‘big government revulsion’ and lead to a relapse.

See my post "A few thoughts about the limitations of government."

Follow Edward Harrison on Twitter: www.twitter.com/edwardnh

Banking and finance specialist, Global Macro Advisors

 

This is the biggest scam in all of human hystery, the biggest scam humanity has ever scammed itself with, and it's a GLOBAL DEBT SCAM.

 

We deserve every bit of what we'll get, for letting the debt slavers do this to us, and for the pushers of debt being allowed/permitted (BY THE PEOPLE ... not just by the useless fucking corrupt governments, and filthy 'media' cunts, who are currently trying to rebuild a PR-spin 'reputation' as a good and worthwhile 'Institution', of 'society', let alone of humanity) to get everyone addicted to their outrageous fucking lies ... transparent and fabulous as they are.

 

And if you really thought it made sense, I'm not surprised at your capacity to lie to yourself, for in 2008 the finance and economics expert liars also said they never saw it coming and claimed to have zero explanation for why the system was teetering on the brink of total collapse ...

Why is it so?

Hollywood is still trying to recast the events of "The Post" movie, as some sort of laughable vindication of the 'serious' role of investigative 'journalism' in 2018, but will any of those disgusting corrupt fuckwits blow a full-time whistle on the scumbag kikes and slave-owner/financiers, who set the whole thing back in motion again in 2009?

 

Dream on! ... peas in a pod ... common owners ... scumbags in a boat upon a fetid sewer outflow pond ... several other apt metaphors ... I'm just pleased I'll be dead soon, and won't have to put up with this brainless self-satisfied-idiot media/journo krud, or the shameless 'celebrity' 'personality' dog's-vomit, who try to pass themselves of as people, nay, as aspirational role-models, for the young and impressionable [dumb].

 

How financial stability creates instability ... is a piece of cake! ... just pretend to have all the answers, and to possess a super-duper magical helicopter ... pretend to give a fuck about other people, policy, finance and market economy ... and debt scam everyone! ... until everyone is convinced that being in debt, and also having an excellent credit-rating, is a good thing - NAY! - critical to life itself!

 

Don't worry ... they'll believe every word of it too ... piece of cake!

In reply to by overbet

holdbuysell lester1 Mon, 01/08/2018 - 22:36 Permalink

Seems that way. Stocks are now a new bond class that need to pay out over time to keep pensioners from starving. Run this out several decades with unsustainable low birth rates in developed countries and perhaps the entire system corrects and comes in to balance as the entitled population declines and is backfilled by immigrants void of said entitlements and willing to take lower wages.

In reply to by lester1

Let it Go Mon, 01/08/2018 - 22:37 Permalink

Got to love how debt is soaring!

During the last two and a half years central banks and countries around the world have added more fuel to the fire which has postponed the day of reckoning. This has made all of us thinking the market was about to turn south looking rather silly and underlines the fact that trying to time events is both confusing and complex, this is especially true when it comes to the financial part of our lives.

When it comes to economics, this means it is best not to have a great deal of faith in our economic system which is severely flawed. Central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush. The article below explores the idea that thinking the economy will adjust and grow its way out of many problems we have tried so hard to ignore deifies what history has taught us.

 http://Hard-landing Scenario Remains Very Possible.html

BraceforImpact Mon, 01/08/2018 - 23:06 Permalink

This is going to make 2008 and every collapse prior look like Disney land.

 

Record debt,  record derivatives,  record leverage,  record risk, record mismanagement, and to be blunt,  record stupidity.

 

People do not know what they're doing, they don't know how "Money" works let alone how to invest.

 

We're so mathematically beyond recovery,  I simply come home, make a cup of tea,  and brace for impact.

 

It will be the biggest economic reversion in history,  aka the "big one"

 

Anyone that thinks we're ok is absolutely delusional.

 

The best part is, no one cares,  no one knows,  and the people that do know are either hiding, waiting for the end,  or trying to squeeze out the last dollar before the spark lights the biggest financial implosion in history.

 

I am a slave with a serial number to a system I didn't consent to,  can't legally leave,  and cannot change.

 

You will learn two very important lessons.

 

1. Trust no one ever.

2. No one gives a shit about anything but themselves.

 

We deserve everything that's coming, the sad part is that is no way out without tremendous loss and pain.

 

I have to go to bed now so that if I wake up I can go to work (labor camp) to get paid in worthless fiat trash that depreciates at 8% a year,  then pay +40% to a corporate oligarchy that provides me nothing but eternal war and pain while recording and controlling my every move.

 

Anyone that thinks this is ok is beyond lost.

 

Anyways,  brace for impact.

 

CoinBug21 Mon, 01/08/2018 - 23:18 Permalink

I dumped all my Gold in 2012 for $1500 and bought FaceBook stock for $30.  Just sold all my FB out today, and putting it all in LTC (LiteCoin).  FB is going to partner with LTC.  When this gets announced you will want the tokens not the marketer.  In the new world Crypto is King.  Get out of fiat now.

CoinBug21 Mon, 01/08/2018 - 23:56 Permalink

You are right.  I will hold off on LTC.  How about Ethereum?  Maybe I will buy that one instead.  It seems to go up more than LTC does.  I don’t like any of the “Alt coins”.  Only the Big 3.  I already own HEMP.  Sessions won’t be able to do anything to thwart the traction in marijuana.  Do you own any PotCoin?

i used to love Gold, but ever since the central bankers started shorting it for size, owning Gold is pointless.  

I bought calls on the S&P Friday.  I think stocks will continue to roof.  Articles like this confirm that belief.

Thanks for your advice  

johnjkiii Tue, 01/09/2018 - 03:47 Permalink

Does anyone do the math? 5% of S&P 1000 is 50 points. 5% of S&P 2500 is 125 points. We can have lots of 50 - 100 point "corrections" that don't show up in the data as "corrections".

Davidduke2000 Tue, 01/09/2018 - 06:25 Permalink

does it really matter? let them eat their stocks , eventually they would have to sell them if there are still buyers when the stampede starts.

companies are buying their stocks at the highest price ever because they cannot generate enough money to show profits, so they reduce the float be buying their own shares, eventually these companies either will become private from lack or public ownership or they'll go bankrupt like sears and toys are us as you cannot hide failing business just by buying the shares to deceive people.

I do not pay attention anymore to the stock market or any financial news or any central banks attempts to deceive the population from revolting.

but eventually blood will run in the streets like rivers when people can no longer tolerate Rome