What I really like about our Straight Talk episodes is that it they are completely agenda free, there are no restrictions, it’s just the 3 of us talking and discussing the issues on our minds. What you see is what you get. Our honest opinions. You may not agree with us and that’s completely fine, but these discussions are meant to highlight fact based topics that we care about discussing them in a hopefully intelligently and digestible manner, make others think as well and hopefully educate in a setting that permits us to go into a bit more depth.
Many market discussions are agenda driven or constrained by time. Speaking for myself I also learn things during these discussions and I very much enjoy the banter we have going.
In this week’s episode of Straight Talk Guy Adami, Dan Nathan and I are diving into the debate of bubble vs mania, the difference between the two, we speak about the new retail phenomenon, the risks associated with it, we touch also the political influence on markets via headlines. Some people do not like us to touch upon the political and we get that, but one can’t deny the influence the political world has on markets and in our view it would be neglectful not to address their influence on markets and to highlight what’s real or not from our perspective. Again: Anyone is free to disagree with our views and we all have different ones, but as Guy said this week: Civility is a sign of strength not of weakness and Dan’s appeal for civility is a much needed in our age where people hate on each other for having different opinions.
We also discuss some technical charts and issues of valuations and for context see also my appearance on CNBC Fast Money this week:
Yes I know, old pic prior to quarantine buzzcut, one day we’ll update it perhaps 😉
One of the issues I mentioned on the show was the fact that in the past few years market moves have become ever more extreme, to the upside as well as to the downside. In the meantime volatility has moved from one compression pattern to the next and ultimately it breaks out. Same with the rallies, they extend higher and higher on ever tightening patterns and then at some point they snap violently:
We just had such a snap in the past 2 weeks and this week’s Fed driven (Corporate bond buying) rally could not repair that damage.
Underlying it all is the again a very pronounced lag in equal weight and, as you can see in the chart above ($XVG), equal weight is hovering around the December 2018 lows when $SPX was trading around 2350.
Hence we also discuss the banks, Wells Fargo, JPM, and the signals they may be sending about the larger economy.
And it may be an ominous one. Yes central banks, with never before seen liquidity injections that make 2009 look like child’s play, have managed to levitate asset prices to unseen valuations inside a recession. Yet there are major divergent issues going on in these markets including the over reliance on price gains coming from overnight gaps to the upside, many of them unfilled and we discuss these as well.
Hence let’s not lose sight of history which suggests what would/could happen if central banks lose control:
Wild if true.— Sven Henrich (@NorthmanTrader) June 19, 2020
Global Dow Jones index.
Largest liquidity driven bear market rally since 1929 creating the largest asset bubble inside of the worst global recession in decades.
"If" central banks lose control history, fundamentals and technicals suggest new lows coming. pic.twitter.com/YZLTVCpRZ7
Control over the virus could prove to be an illusion as cases are increasing to ever higher levels and many states in the US are seeing record spikes, hence $AAPL again shut down its stores in key states. A “V” shaped recovery presumed by markets at these valuations may disappoint in size and scope and then what do we have besides a historically disconnected in asset bubble?
No, the risk factors may be currently ignored by liquidity soaked markets, but reality keeps knocking at the door and one day may suddenly open it.
Without further ado here’s this week’s episode of Straight Talk and we hope you enjoy it:
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Separately, for those interested, I’ll be posting a detailed rundown on the latest market technicals. If not already subscribed you can register here: Market Videos.