Worhsipping At The Altar Of FOMO

Authored by Sven Henrich via NorthmanTrader.com,

Retail investors are worshipping at the altar of FOMO (fear of missing out). It may prove to be a painful experience.

Never before has retail gotten this aggressively exposed to stocks.

Just in time when central banks and buybacks are pulling back. I talked a bit about this in the recent The Carrot Top, but I want to expand a bit on this to issue a general warning for retail: The boat is fully loaded in one direction. Be aware.

Wall Street will not warn retail, they’ll keep pushing the envelope until the very bitter end. It’s actually quite easy to be a bull. Keep raising targets, always be optimistic, and when something breaks shrug your shoulders and say: Hey what are you gonna do? Stuff happens. The Fed will come to the rescue.

And the cycle begins anew.

You know the drill:

Remember the primary job of Wall Street is to get retail to invest, and to be fair, they are doing a fabulous job.

And so every December we see the same annual ritual. Here’s the message sent to retail, we can only go higher. $SPX targets for 2018:

Here’s a visual from BAML:

The primary argument: Wall Street is not yet euphoric:

Really? What’s this:

Not euphoric? Let’s dig in a bit deeper into the data.


You may have seen my Rydex chart indicating record bullish allocations in The Carrot Top:

Last night Jesse Felder sent me some more data points confirming the same:

More data:

The American Association of Individual Investors’ asset-allocation poll shows members’ exposure to stocks are as heavy as it was near the 2000 peak. Cash allocations fell 1.2 percentage points to 13.9%. Cash allocations were last lower in December 1999 (12.0%).


TD Ameritrade’s Investor Movement Index of retail activity “saw its largest single-month increase ever in November, increasing over 15% to hit an all-time high of 8.53. TD Ameritrade clients were net buyers for the tenth consecutive month.”

Combine it with sentiment:

Via Reuters:

“52 percent said they believed the stock market could sustain continued growth for five years without a downturn of 10 percent or more.”

Confident much?

It’s actually the perfectly logical conclusion of what central bank interventions have wrought:

The BOJ balance sheet is now at 121% of GDP the ECB’s at 41% of GDP.

The result of course is we haven’t corrected at all. We are now in the longest market period without even a 5% correction. Ever:

We haven’t had a single down month in 2017 which historically has never happened either:

And the rush into long equity funds has been unprecedented:

Get us into stocks. We can’t go down, we can only go up. FOMO.

So when I say central banks have created a monster I really mean it.

And so it’s no surprise that central bank policy is viewed by some as the greatest risk to asset prices in 2018:

Mohammed El-Erian:

“The biggest risk to asset prices and the global economy would be if the biggest institutions reduce their monetary stimulus at the same time. Rather than reflecting the prospects of individual institutions, the greatest monetary policy uncertainty facing the global economy is what would happen if all these central banks, along with the People’s Bank of China, were to decide to reduce their monetary stimulus at the same time. When it comes to central banks, this is the biggest source of risk to asset prices and the global economy, and it would call for high-frequency policy monitoring and close international consultations.”

Asset prices are a central bank planned construct that has resulted in retail being completely long and fully exposed to equities.

And I have not even addressed the trillions of dollars exposure all being long short $VIX products:

BAML has a phrase for this: “Yield starvation forces selling volatility for yield”. “Forces” being the operative word:

Note the center piece: “Unprecedented central bank policy & low growth recovery”.

By the way I’m not picking on BAML here, not at all.

But I’m highlighting that 2017 has seen an unprecedented rush by retail into the most highly valued stock market since 1900 according to Goldman, a market that remains entirely uncorrected.

But nobody is issuing any risk warnings here. Keep going long my friends we can only go higher and if there’s a dip buy it. And no doubt this strategy has worked.

My perspective remains a variant one: This singularly oriented market construct is at extreme high risk that some trigger will pop all of this.

In a world where nothing has mattered and corrections have disappeared altogether it may be a fair question to ask what such a trigger may be. I’ll leave that for a future post, but I will say this: Triggers are often the excuse to assign cause after the fact. But it is the construct itself that seeds the depth of the ultimate unwind.

Worshippers at the altar of FOMO have come accustomed to no dip ever lasting. Will they find themselves slow to react when one does?


Raffie ebworthen Thu, 12/07/2017 - 16:57 Permalink

PM are going down in flames. REAL MONEY IN ACTION for sure....The never ending PUMP-N-DUMP in the PM market. Gold is -$15.40 and will fall to about the 1200 area an stay there for a few years. LOL....  Sing along - The gold, the gold, the gold is on fire. We don't need no profits, let the muther f00ker burn, burn muther fooker burn. 

In reply to by ebworthen

Herdee Thu, 12/07/2017 - 12:32 Permalink

Money printing holding up the markets. Will they continue to print? Governments are so far into deficit that they can't have interest rates increase. There's not enough tax revenue coming in any longer. Government obligations because of ageing demographics and war spending are killing their budgets. They have to monetize debt.

GeezerGeek Herdee Thu, 12/07/2017 - 12:52 Permalink

You are probably correct that money printing is holding up the markets and keeping interest rates down.I have to wonder why your comment "there's not enough tax revenue coming in any longer" includes those last two words. When was the last time there was enough revenue to cover expenditures? When was the last year the national debt did not go up? According to all I've read, that was more than 50 years ago.And you are only half right in attributing our deficit problem to old folks and MIC. You entirely overlook the fact that the war on poverty has expended just about as much money as the total official US debt. You can't just point to one or two areas of spending that you do not favor, you have to broaden your view. So which political party is going to start the spending cuts?

In reply to by Herdee

EmeraldWI Thu, 12/07/2017 - 12:39 Permalink

When the multinationals get their income tax refund checks, they'll give big raises. Workers will then purchase additional heat tape and new skirting for their trailers and it will have a snowball effect.

RabbitOne Thu, 12/07/2017 - 13:02 Permalink

Most of the investors who grew up in 1970s through 2008 had years frequently with market corrections of 10% and frequent bear markets (average frequency of Bear Markets since 1929 is every 3.4 years). Having a fed overturn the business cycle with near zero interest rates has left everyone in a quandary? So where do you go to make a decent return on your money? Answer: Stay in the stock market it is your only hope. This is the predominate reason people give for not selling out.So because there are no frequent corrections or bear markets we have had constant alarmist’s predicting the bottom will fall out of the market any day now since the end of 2013. I have easily read 50 or 60 of these predictions since 2013. But I am still invested.

daveO RabbitOne Thu, 12/07/2017 - 13:39 Permalink

The FED will pull enough support in 2018 to allow the markets to correct(crash). Why? Because, it's part of their(banksters) long march to completely takeover the economy. The FED prefers to trigger "slowdowns" ahead of midterm elections, so as to bolster the opposition and keep the government divided and weak in relation to the banksters. Remember 2008, how they cleared the way for their Anointed One? This time the Dem's are flushing all of the male politicians out of their ranks so as to flood as many women into power as possible. Then, after a market meltdown has occurred, these women will gladly allow the FED to print $2-3 Trillion per year, For the Children!!!
The FED, Dem party and RINOs are on the same team. Their motives are pretty obvious.

In reply to by RabbitOne

scubapro Thu, 12/07/2017 - 13:29 Permalink

Worshippers at the altar of FOMO have come accustomed to no dip ever lasting. Will they find themselves slow to react when one does? Of course they will.  Same as it ever was.     they have no sell discipline.  they never want to sell to lock in gains...its always 'maybe there will be more'.    and as a direct result of no sell discipline, they wait until -10% or more, then sell just as the initial leg down is ending....then kick them selves during the rapid 6% rise from there, making it more difficult psycholocially to sell again, until the pain is too much at -20%....but by the time -25% is hit, most of the average bear market is over and one SHOULD be shopping for good values etc.     stupid is as stupid does....seems appropriate.

adr Thu, 12/07/2017 - 14:05 Permalink

The real point is that 80% of America doesn't have enough cash to increase their standard of living even if the tiny investment goes up 500%. They might be able to pay off some of their substantial debt, or a car loan. That's about it.That's why there has been the rush to buy $100 of Bitcoin, because if it goes to $1 million then they have a substantial gain.Of course none of them realize that $1 million Bitcoin will take more energy to process transactions than can be generated on Earth.

Carl Panzram Thu, 12/07/2017 - 16:13 Permalink

This is gonna be fun to watch. Combine the lunacy the liberals have over Trump and crashing markets. We are in for a wild fucking ride. Stay tuned... the propaganda machine is reving up.

Let it Go Thu, 12/07/2017 - 22:18 Permalink

With the passage of time, things change and evolve. This transformation can be seen in both society and the economy. A question we must ask is just how relevant today's comparisons are with prior economic cycles? The situation today is in many ways "historically unique" due to the rampant expansion of credit in recent decades.Recently  I found myself pondering the line, "outwit and outlast" that is often used during the popular hit television show Survivor. It occurred to me the winners in both life and investing often reflect these qualities and that this game is far from over. More on this train of thought in the article below. http://Economic Evolution Renders Many Comparisons Obsolete.html