Submitted by Eric Peters, CIO of One River Asset Management
"You always knew you’d know it when you saw it,” said Roadrunner. “But you could never be sure what it would look like until you saw it,” continued the market’s biggest equity vol trader. “This is it - now we know. We’re in this cycle’s euphoria stage,” said Roadrunner.
“The Tesla move we just saw is unlike anything I’ve experienced.” Amazon trades 2.5-3.0mm shares on a busy day. Tesla traded 60mm. “1.4mm Tesla options traded. And vol was 170. I’m guessing that in notional terms it was the busiest day for a single stock in history."
"The Tesla flows are mostly retail,” continued Roadrunner. “And most of the flow is in one-week options.” Which tells you it’s pure speculation. “Guys text me all day. And the dumbest of the dumb are making hundreds of thousands in their personal accounts right now.” Animal spirits have been unleashed. The shift by brokers to offer zero-commission equity-trading added to the market’s energy.
“This is Millennial kind of action. It’s like it was in 1999. It’s a race to the top, fear of missing out kind of move,” said Roadrunner, glancing left, right, up.
"This year is set to be wild,” said Roadrunner. “The big bear market probably waits till right after the election, and it won’t matter if Trump wins or loses,” he said.
“So that means you need to get out well ahead of Nov, because bear markets have a way of outsmarting almost everyone,” said Roadrunner. “And as this phase ends, the question is what will replace it?” he asked, stopping to scan the horizon. “I wonder if Larry Fink’s recent ESG theme kicks off a self-fulfilling bubble in a whole group of new names. Maybe Tesla is showing us the way."
"Sentiment is not yet off the charts,” bellowed Biggie Too. “And the data does not say boom or bust, inflation or deflation,” continued the global chief investment strategist for one of Wall Street’s too-big-to-fail affairs. “It’s just that when you get rates this low, liquidity this high, and volatility so tame, something unexpected shows up and wrecks the party,” barked Biggie, no stranger to a late-night rager.
“When you get growth stocks this stretched, technology, bonds, something comes along, always,” said Too, eyes closed, breaking into a gentle groove.
"Scratch and sniff this bull market and you smell something not quite right,” continued Biggie. “Something deflationary. Not reflationary,” he said. 10yr bond yields dropped 6bps on Friday’s +225k payroll. “Maybe it’ll be a break to new lows in bond yields or a burst above 100 on the dollar index that brings on our next Minsky moment,” said Biggie, his golden smile widening, bringing it home.
“Maybe it took investors 10yrs to realize that lower interest rates equal higher asset prices, only to discover that lower interest rates equal lower asset prices."