Guest Post by Sven Heinrich
The recognition that this market is in a bubble (something I’ve been writing about extensively) has gone mainstream and banks are recognizing is now too.
This week JP Morgan’s Kolonavic is also raising the alarm bell:
“The bubble we are describing is expressed in equity factors … We caution investors that this bubble will likely collapse, i.e. this time is not ‘different,’
..some tech names are trading at “unsustainable valuations” supported by record level of speculative call option activity.”
“Bonds, momentum stocks, and low volatility stocks rallied – pushing the valuation spread between defensive and cyclical stocks to a level 2x worse than during the peak of the late-’90s tech bubble”
And yes the market continues to party like it’s 1999 and the signs are mounting that the market has gone full retard. But as everybody knows: You never go full retard. This market just went full retard.
Yesterday’s renewed rally to new all time highs completely ignoring $AAPL’s revenue warning from the day before caused Jim Cramer to wonder:
what the hell is happening? Where are the sellers??
— Jim Cramer (@jimcramer) February 19, 2020
The market remains on autopilot ignoring everything negative around it, from collapsing economic growth in Asia, to mounting earnings and revenue warnings. I maintain that the larger issue is structural:
Spot the structural problem that no central bank can fix.
h/t @carlquintanilla https://t.co/MWSOSZuoSL pic.twitter.com/Zp3dAMnYpp
— Sven Henrich (@NorthmanTrader) February 18, 2020
And central banks are in full panic mode trying to prevent the next recession. In their failure to normalize balance sheets and rates they’ve done into full retard mode themselves, easing everywhere with rates cuts and balance sheet expansions and daily interventions everywhere, consequences be damned. All in the name of defending the global economy, but in process they have created the largest asset bubble ever seen and asset valuations are exploding higher totally unsupported by the fundamentals.
The eventual implosion of this asset bubble will eventually hurt all of us as the reversion will bring about the recession central banks have sought to avoid. But because of their reckless actions they invited investors to engage in full retard behavior and create market distortions the size of which risk a coming implosion potentially greatly amplifying any recession they sought to avoid.
Markets are now 100% dependent on daily central bank intervention:
If central bankers don't intervene every single dayhttps://t.co/I0FnNz9K4b
— Sven Henrich (@NorthmanTrader) February 19, 2020
Without which the entire market construct would implode.
Some signs of a market in full retard mode below:
BofA asset bubble history chart:
Price to Sales ratios at all time highs:
Market cap to GDP move over 158%, by far the highest ever recorded:
Retail, perhaps prompted by free commissions and FOMO, catching the call options bug:
Cash balances are at a 6 year low:
Complacency is high as seen by the virtual lack of any interest in protection:
Optimism about future returns is the highest ever:
Individual momentum stocks are being chased with no regard to any fundamental backdrop, all based on future optimism.
Examples of year to date performances not even 2 months into the year:
Meanwhile great distortions are mounting and historical correlations have broken down:
The ratio of equal weight versus the leaders has become entirely distorted:
The smart money index has given up all historical correlation:
And yields versus the $DJIA are not even pretending to be on the same page any longer:
One day we will find out who's lying..$DJIA $TNX pic.twitter.com/kgcYaF6dVy
— Sven Henrich (@NorthmanTrader) February 19, 2020
While the market is ever more reliant on literally a handful of stocks holding up the earnings equation as the larger market is chipping away:
1 month index performance.
The broader market is not going anywhere.
It's all tech, specifically a handful of stocks.
You know which ones. pic.twitter.com/MW7g0vwFb9— Sven Henrich (@NorthmanTrader) February 19, 2020
Yes, the broader market is correcting while indices crank out new highs driven by a few stocks:
Why is the larger market correcting? Because the signs are mounting that this aging business cycle is in trouble:
Job openings are showing negative growth:
And the yield curve, now dismissed as it’s different this time, has inverted again:
If it’s different this time it has to be spectacularly different as investors are chasing tech complete one way mode:
And all of this as the $DJIA is wedged between 2 massive long term technical trends demanding an epic resolution to come:
“this time is not ‘different’” JP Morgan’s Kolonavic says and I agree with him and I’ve called this market an unfolding tragicomedy.
Will equities peak here in February or in March as they did in 2000 or even in March as they did in 1937? Or will this bubble worsen held up by politics interests into the US election?
We can’t know until after the fact. From my perch this market is the most dangerous we’ve seen since 2000. A market in full retard mode, utterly removed from any economic foundation, artificially propelled by knucklehead central bankers who are refusing to take responsibility for the reckless investor animal spirits they have unleashed resulting in the largest asset bubble of our time.
Never full go retard. This market just went full retard.
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Since the market are bought and sold on the same sort of algorithms which control all of our data, can we be pretty sure the same algorithmic devices and tricks are used on “buyers” to influence their decisions?
Of course we can.
I believe that at least 70% (or more) of us are easily persuaded by certain media framing devices which have been tested on us for decades.
They are just getting better at it now that 5G is available.
Overton window
The Fed and their criminal bankster buddies are going to purchase all the assets they don’t already own with new ‘money’ created especially for them and for the occasion.
They know that the Dollar is toast in the near future, so print up plenty and buy real assets before the rubes figure out the con. It’s the same trick they played nearly a century ago and it was so successful then they’re going to do it one more time.
Even better……that “new money” is based on Taxpayer (yours and mine) assets and debt. Even better than that….when this shitshow comes to an end the Taxpayer (you and me) are on the hook, not the Fed.
Doesn’t that just give you a warm tingly feeling.
If they are printing the money and issuing the money, renting the property and houses to us, controlling the energy we use, water we drink, food we eat, excrement we hand back and control the distribution channels of all these things. Can someone tell me what real assets we the people have other than our labor? Does anyone feel like we are in a world of SHIT at the moment?
The corporate insiders are selling vs purchases at a ratio of 8:1. Then, buying gold.
The FED is creating money like your crazy alcoholic degenerate uncle with a fist full of stolen credit cards.
Somehow the market buys on the premise of future optimism!
Hopefully, after the carnage (and it’s gonna be spectacular) we can understand the damage done by the FED and END THE MFer.
In preparation I’m buying a violin and a toga. I’ll be playing as it all burns to the ground.
News Flash!
The market went full retard in ’09/10 and we’ve just dialed it up past 11 now.
“Once you get down 6 feet, you can stop digging.”
Just Sayin’
to make matters worse,the bond market has the potential to go haywire–
dennis miller,who posts here about financial matters,has a financial letter that i receive–
this year there is about 66 trillion of corporate debt coming due,most of which will need to be refinanced–
short,easy read-
Corp dedt will reissue bonds at lower yields. This is a distraction. Rates are going down. Only when they are going up is an issue when corps need the money…
Notice there is no chart of Volume, this indicates that most of the trading is being done by the machines, not the humans. A little AI here, a little front running there, a little insider trading everywhere.
The market no longer reflects the fundamentals of the economies, it is rather a tool used to condition the population with signals telling them “all is well” when in fact we know the opposite to be true.
They really screwed the pooch again, and when it comes tumbling down (due of course to populism and nationalism) then it won’t just be US tax payers bailing out US banks, it will the global debt slaves, bailing out international corporations “for the children”
go figure.
When govts no longer view their currency as currency and they have a military to make their trading partners comply they can double time the printing press
The bankers print money and this money goes into equities while all the while the economy continues its downhill slide. At what point does the populace realize that the vastly overpriced stocks are worthless and thus every paper instrument with a dollar value on it, including the dollar, has nearly no value?
I suspect that day will not occur until after November 2020. But when that day occurs, duck because the shit will hit the fan in a big way.
“The eventual implosion of this asset bubble will eventually hurt all of us as the reversion will bring about the recession central banks have sought to avoid.”
They, the govts in collusion, needed this beer virus to create inflation. Also reviewing the FRED employment chart of working 15-64 year old showed the fewest ever. Now you understand usa govt focus on immigration. The more people working the more taxes.
Nobody is realizing a $300 per share for Apple is 3x over priced but if you have massive inflation it is correctly priced….please hear me now. The mkt will crash but return quickly due to inflation. We will experience severe inflation, especially on food, they will keep gas low because that crushes an economy. Allowing higher food prices makes a skinner, healthy less lazy nation. Not kidding. Having a job gets them insurance. More healthy. And more tax revenue. Gotta keep slaves healthy. Competition from immigrants also helps. Your govt has a plan….
The fed is propping up daily any major ”psycho stock”. I termed that. Its a stock that could psychologically alter to the negative someones or an investor psyche and cause less euphoria. Why apple china disruption and lowered earning guidance that should have impacted to negative pricing Action but closed higher…..
Prepare for inflation and deflation at the same time. Unprecedented.