Blain: "The Market Mood Has Changed For Two Reasons"

Submitted by Bill Blain of Mint Partners

"Things without all remedy should be without regard: what’s done is done..”

That was the coldest, wettest and most miserable Easter I can remember. When I was a child we went up into the Pentland Hills above Edinburgh for sunlit Easter picnics and rolled our hand painted eggs down the hill. This year they had snow. I spent the holiday freezing cold and sodden wet on a bouncy race committee boat in the Solent - more fun you really can’t imagine...   This morning opened up miserable, so I put my winter hat back on! (I think this is the first time since the winter of 1947 The Blain has worn a winter hat in April!), and guess what? The moment I got into the office the sun came out!

But, I digress... back to markets.

Stocks are crumbling. Bond yields are falling. Yield curves are flattening. Sentiment is wobbling. Trump is jawing. The Chinese are - no doubt - smiling. Add another couple of hundred items to the retaliatory tariff list, but not yet serious stuff. Keep markets nervous. Occidental marketplace economies might be about to get their shreddies shredded....? Nope, I suspect, this is more likely to prove a Selective Correction moment… meaning it will probably still test new lows (despite y’day’s late bounce and hopeful Asian action this morning.

Do we continue to believe the fundamentals of strong global synchronized growth justified higher stocks and monetary tightening? There are very solid reasons to think so.

Or should we be increasingly concerned about the fractious market mood triggering a stock crisis, a slide in global sentiment and the flat yield curve proving right about slowing economic activity? A global recession? That would hurt...  But, its unlikely. I guess we will see signs on Friday with the payroll data confirming the US economic miracle continues.

However the mood has changed. Two major factors:

  1. Political fears are proving highly volatile. The possibility the China/Trump spat turns serious is a valid concern. Politics can be like a simple scratch that turns septic - a minor irritant like Trump causes such pain and rawness that other bruises, nicks and cuts turn dangerous. So concerns about Russia vs Europe/US, Turkey, the Middle East, Europe and Brexit are all proving raw spots of market pain – jangling already hurting nerves. Donald Trump’s insistence on tying his success to the stock market might just have been a mistake!
  2. Suddenly the massive expectations driven bubble valuations on New Economy / Tech Revolution stocks looks like it might have popped. Facebook looks certain to garner a massive regulatory fine. Amazon may have built itself into a monopolistic internet shop, but does that justify its stock price? Well... perhaps. But Tesla? At the end of the day its a car company that’s not making many cars - and the ones it does aren’t all they are cracked up to be.. (I can’t tell you how many of my chums over the weekend we’re regurgitating all the Tesla propaganda about its tech genius, game changing capacitance IP, and solar revolution. Stop - its a niche car maker. Nothing more. Nothing less.

(On the other hand, the fact Trump is tweeting furiously about Amazon sums up all the reasons for buying it. I’m indebted to my chum Pat Duke for pointing out Trump Tweets:  “Amazon is putting thousands of retailers out of business”, and “The Trump Administration will not tolerate monopolies”, as great reasons to own the stock!)

More broadly, however, there is a push back on Data and Tech Stocks. Where a company trades on a multiple of 138x just because we’ve bought the narrative about their bright/great/disruptive future, and then it slips back to a more realistic low/mid double digit - that infers a significant price shock.  

If you look back 10 years, the degree of change and refocus becomes apparent. Pre the Global Financial Crisis, in 2007 Microsoft was the only “Tech” stock in the top 10 corporates by market capitalisation. The rest of the list included names like Exxon, GE, Citigroup, AT&T, Shell, BOA, ICBC and HSBC.

Today; Apple, Google, Microsoft, Amazon, and Tencent take the top 5 places. Berkshire Hathaway is next then Alibaba and Facebook with JP Morgan and J&J rounding it up. Tech is nearly 80% of the top ten market cap, up from 10% in 10 years!!!

So, back to the day job, and thinking about when to step back into stocks. Meanwhile, the slight pick up in bonds looks a good selling opportunity. If anyone wants to lighten up on their corporate low grade books… we’re all ears..

Comments

Rapunzal AUD Tue, 04/03/2018 - 06:56 Permalink

I predicted the DotCom crash 2 month before and the 2008 crash 6 month before. I warned family and friends in both cases and you won’t believe how many didn’t listen.

This coming crash is an entirely different animal. I never seen so many indexes, statistics, ratios as rigged and flawed in my lifetime.

 

My warning is vague therefore. Yes the dollar will be devalued. It will be done in steps. Yes the Dow Jones will drop as well in steps. I don’t think they will risk a sudden drop unless they have a bullet proof excuse. They realize to many people are waiting to lynch the bankers and TPTB.

 

My gut feeling tells me they have one more bullet to catch the falling knife. But since we are passed the hockey stick already this will be very short lived. Max 12 month before the final stab to kill the dollar. 

 

Thats is why the militarization of the police and the attack on the 2nd A.

In reply to by AUD

Rapunzal gregga777 Tue, 04/03/2018 - 07:20 Permalink

Well I’m not really happy about any lynching, why does it have to go this way ? Aren’t humans a bit smarter. But since the Rothschilds controlled the French Revolution and the Rothschilds and Rockefellers the Russian Revolution I don’t believe in Revolutions anymore. Somehow I’m for decentralization. But people have to start to think for themselves first. Good luck with that.

In reply to by gregga777

AUD Tue, 04/03/2018 - 06:30 Permalink

So... it's "massive expectations driven bubble valuations on New Economy", but "strong global synchronized growth justified higher stocks and monetary tightening"?

This guy hasn't heard the old robot saying; "Does not compute"

BigFatUglyBubble AUD Tue, 04/03/2018 - 06:37 Permalink

and the alley-oop follow through....

live by the bubble, die by the bubble

The Donald Nailed It: 'We Are in a Big, Fat, Ugly Bubble' - Sept 2016
https://www.newsmax.com/Finance/DavidStockman/donald-trump-bubble-econo…

Trump on Dow 20,000: 'Now we have to go up, up, up' - Jan 2017
http://money.cnn.com/2017/01/26/investing/trump-dow-20000/index.html

“We have the greatest economy, maybe ever in history. The greatest economy we have ever had" - D.J.Trump March 2018
https://nypost.com/2018/03/29/trump-tells-union-crowd-that-us-has-best-…

In reply to by AUD

Dilluminati Tue, 04/03/2018 - 06:56 Permalink

I think tech stocks a laughable bubble, Tesla, Facebook, Twitter, and then to lesser degrees Apple and then Amazon.  The price for these equities a greater fool buy.  I think people confuse speculation, investing, and the word savings from their perspectives where market professionals do not.  There were people who bought and sold Tesla and Bitcoin and knew that it was purely speculative, made money, and moved on.  No emotions, was a crap shoot so to speak.  They might even have had some latitude with Tesla to offset capital gains with that play.  So there you have it.. and then Apple who manufactures stuff, albeit high priced stuff that doesn't have any significant differentiation in respect to other items in the market, the marketing of it however still has people buying the stuff to pinch hit for their brand label sensitivities.  And then finally Amazon which is a buy-in idea, you either like the flat rate shipping, get the annual subscription and partake of the videos and music, or you do not as a consumer, you do not care if the post office is subsidizing the whole damn thing, two days later you want your stuff.  I was looking at Silver and Gold this morning and reflecting on people who bought into that bubble, they are orphaned with that loss, as one can only speculate how many cycles of profit taking needs to occur to bring back unit dollar parity of the bubble high purchase costs?  

Once that bubble pops you're orphaned.  Professionals know the difference between speculation, investing, and savings.

You have to decide what you are doing and go with that approach, if you are close to retirement you should be saving.  Really simple, you either are saving enough or you are not.  If you did not save enough, you should speculate, you should swing for the fence.  If you have allot saved and are now capable of investing, you should do that carefully with stuff you understand.  

I remember in the 90's everybody was a day-trader who had windows 95 and a modem.  That ended badly for most.  It was so easy just buy some dot.com item like "eggs" egghead of Crammer fame.. and yes it ended badly

These current tech stocks will also.

In 1929 radio stocks were the bubble, it seemed revolutionary, it was not. 

nmewn Tue, 04/03/2018 - 07:01 Permalink

"I think it's crazy," Wilson said of the court's decision. "Reducing coffee or French fries to their acrylamide content isn't how we study diet and nutrition."

(Edit: Well of course it's crazy, it's a Kalifornia judge isn't it?...lol)

Many pointed out that Proposition 65 doesn't account for the positive benefits of coffee.

"This is an unfortunate ruling that demonizes coffee as a carcinogen when the overwhelming evidence in humans is for benefit or at least no detrimental effect," Dr. Nigel Brockton, director of research at the American Institute of Cancer Research, said in a statement."

http://www.latimes.com/local/lanow/la-me-cancer-coffee-20180330-story.h…

gregga777 Tue, 04/03/2018 - 07:05 Permalink

Financialization of everything, engineered by the Golem Suchs Feral Reserve System, has changed the way recessions start. Panicked CONporate executives, having loaded up their CONporations with debt to goose stock prices hence their own incentive pay, become fearful that their stock options will expire worthless, cause recessions. They try to cut their way back to profitability by slashing payrolls ruthlessly and closing facilities. They shed millions of workers making recessions a self-fulfilling prophecy. 

Money_for_Nothing Tue, 04/03/2018 - 07:20 Permalink

Debt will be inflated away. Way past the point it could be written down. If China chooses war the US will make a fortune selling weapons. China's neighbors don't want to be Finlandized. And they don't want help like Tibet is subject to. US => manufacturing and automation. China => Red Book.

MusicIsYou Tue, 04/03/2018 - 07:35 Permalink

Weird how all the political turmoil and friction with China and Russia didn't matter while Obama was POTUS but now all of a sudden that Trump is POTUS it matters. Must be because Trump is white.

Last of the Mi… Tue, 04/03/2018 - 08:37 Permalink

Ummm, because the corporate welfare under the name of QE is fading a bit? Not to mention the realization that realization of millions that social media is nothing more than a government microphone up your arse.

Yeah, you might call that a bubble.

LOL