One More Trader Capitulates: "It's A Bubble, Buy It"

"The world is full of bubbles," warns former fund manager Richard Breslow but that shouldn't stop you from buying 'em. In the latest capitulation of a former realist, Breslow's confessional clarifies what many, many market participants clearly believe (and what Goldman called "unusually bullish"), "The reality is, you don’t have to like equities to buy them. And that will remain true until it isn’t. For now, beauty is in the eyes of the holder."

"Almost there. S&P 500 price to sales ratio is just 4% from March 2000 peak."

Via Bloomberg,

Another day, another set of record prices in global equity markets. But trust me, they aren’t doing it with the sole purpose of vexing you. How they are trading is logical and explainable. And I’m not saying that to irritate you either. It’s just that you can’t look at the current valuations and then reread Graham and Dodd in hopes of a simple explanation.

To make matters worse for those who don’t trust this market, you needn’t be a hopeless optimist, oblivious to geopolitics, overly complacent nor stupid to keep piling on.


Even allowing that corrections are, of course, inevitable, you can’t accurately predict when they’re going to happen.


The most simple explanation will also be the least satisfying. The market keeps going up and quant models and passive index funds don’t care why, just that it is. And they choose to or are forced to keep participating. Breadth and volume and all other sorts of arbitrary measures come and go into focus over time. But as factors in a model they eventually get downgraded and become part of the error function. Putting continued emphasis on them is a subjective decision not based on current statistical proof--in today’s world. Models understand what a definition of a trend is, they aren’t at all bothered by measures claiming overly bought or sold levels.


And this is especially important because if there is one additional characteristic that separates this trend from many of those in the past, is it isn’t driven by get-rich quick schemes. Quite the opposite. If it were, many fewer people would suffer such pain every time we go higher. This is classic supply and demand.


Sovereign wealth funds have been gobbling up stocks at an increasing rate. They are classic long-term, buy-and-hold investors. So each quarter when you see their reported equity holdings bulge some more that represents shares not available for you to take off their hands. Add in stock buybacks and comfort with added leverage at these silly interest rate levels and you realize that the percentage of “hot money” to the overall size of the market continues to shrink.


Even if you do think the world is full of bubbles, fund managers have to pick what passes for relative value in this environment. You could talk yourself into believing the equity story whether you hate or love bonds. That’s the beauty of healthy debate. Or fishing for the answer you want. Same for credit.


And when charging fees, you have to try to be invested. A phenomenon that is being exacerbated by the shift to passive versus active funds. A rotation that is only accelerating and now, with added regulatory encouragement as MiFID II approaches.

Breslow concludes by succcinctly summing the status quo up perfectly:

"The reality is, you don’t have to like equities to buy them. And that will remain true until it isn’t. For now, beauty is in the eyes of the holder"

But it's not like some investors aren't worried...


covfefe MICdotard VD Thu, 10/12/2017 - 14:27 Permalink

on a long enough timeline ~ they both have the same ENDING whether or not you own your own island in the process is a totally different story... Just ask Blackbeard, Calico Jack, or Captain Morgan me? well, if push came to shove ~ I'd rather be mobile on terrain with escape routes that I understood rather than to be a clueless dolt stuck on an island where I was a sitting duck.

In reply to by VD

Keltner Channel Surf Thu, 10/12/2017 - 13:43 Permalink

Got a half-percent through 1:00 today and feel like a f&^cking genius.A "Bubble"?!!  Hardly, more like suspended animation.   Volumes today are running from 1/6 to 1/3 normal, major indices ‘changed’ by less than a few hundredths of a percent as I type this, don’t think I’ve ever seen this in October, let alone the day after an FOMC release, and now it's more the norm than an exception.This is, without question, the worst post-August trading in a generation.

Keltner Channel Surf Traderone Thu, 10/12/2017 - 14:44 Permalink

If it's not broke, why tinker with it.  Glad to see the old ES behaving. I've had to abandon my beloved IWM and move to the QQQs and (gasp) Junior Gold Miners to continue the intraday mean-reversion methods I've worked on for years (chart-based and manual, still).  If it wasn't for 3X leverage, I'd have gotten squat.  Good luck to you, sir, and it'll be nice to get Premier League football back this weekend.

In reply to by Traderone

hola dos cola Keltner Channel Surf Thu, 10/12/2017 - 17:36 Permalink

European hours are even worse. Small move in the first hour, small move the other way around 1pm and waiting for the US to open. Every day! All the indices. Then US open, slow, move a bit and try to keep the unfavourable side fixed till EU closes. Then you have your suspended animation party and we better switch of here.EIA (FAKE NUMBERS) today. Market wanted Brent down; news release; all trying to get outof their sell, I bought and jumped with a little over 10%, on leverage, just before close. After 18.30 I could only watch your party, green with envy. (I had a sell planned that could have reversed the former resulting in another 10% but only minutes left and can't afford the risk holding overnight. Greener when I saw it went the way up another time!)For an amateur like me the suspended animation is interesting though. A lot of noise has gone missing resulting in more predictable targets. Just the direction (oil) remains illusive and hedging costs. No illusions: this loser was lucky today;-)

In reply to by Keltner Channel Surf

Yen Cross Thu, 10/12/2017 - 13:43 Permalink

    Trader is a fucking idiot, and should be buying protection while it's cheap, and keeping his powder dry.  I was just listening to some douchebag on Fox Businees talking about how Trump's tax plan has no effect on stocks because (3) of four major sectors have been down since the election. I'd like to see the Hookah she's been smoking.  She also went on to say that earnings growth for S&P should be 11.00% in 2018. I think she needs to look at Tylers S&P 2017 earnings estimates overlayed with the S&P. I also think she needs to learn the term"BUYBACK".  What a fucking DUNCE!

Irvingm Thu, 10/12/2017 - 13:46 Permalink

There is something to the theory that once Zero edge and the other bears finally give in the crash will come. That is why a lot of us here stick with SHEPWAVE. The timing the have is precise enough to catch the up and down swings. Lovin their gold calls. Simply scary how they know exactly when to buy and sell.

khakuda Thu, 10/12/2017 - 14:45 Permalink

All of this because the Fed doesn't have the balls to take the punch away as the party rages - and a downvote from Ms. Yellen.

ReturnOfDaMac Thu, 10/12/2017 - 14:21 Permalink

Buy buy buy.  BTFD, BTFAH. Bought the good, bought the bad, bought about everything they had.  Buy the rise, buy the fall, buy every and anything at all! Buy buy buy. Owning stawks will make you rich, but sell before the fall cause the falls a biatch!

taketheredpill Thu, 10/12/2017 - 14:28 Permalink

 "Even allowing that corrections are, of course, inevitable, you can’t accurately predict when they’re going to happen." You can predict however, that in hindsight articles like this will be flagged as the "tells" that were missed.... 

hola dos cola Thu, 10/12/2017 - 16:23 Permalink

Looks like it went 'wrong' from end 2014, exactly when oil crashed.P.S. Nice head and shoulders there. Dislocated schoulder, upward broken. 160 about for a sell.

vladiki Thu, 10/12/2017 - 16:57 Permalink

Breslow's article is relevant for worried pro's like himself, who see that the market's lost its mind, but have to "be in it". They suffer career risk if they sell out, unless by fluke that is at the top ... when the fluke looks like spooky genius. The rest of us can do as we please .. and be anything from levered long to levered short or OUT.

We know that at current pricing, 5-15 year results will be terrible. Short/medium term - who knows, who cares? That's not investing, it's gambling. And if we want to gamble, best go to the casino where we know the rules and the game is clean. But get out of these dangerous overpriced rigged manipulated financial markets. They're a joke.