“Round One To Liquidity”: “Liquidity” Being The Punch Bowl

Regular readers will note that I tend to quote the same people over and over, and over, again. Well, as clients will attest, we do our own work, but that doesn’t mean we don’t respect the work of others; of a shortlist of others, that is.

One of whom I have a great deal of respect for happens to be macro strategist extraordinaire Julian Brigden.

Here he is on the present market setup:

“The conundrum we face is measuring the relative importance of liquidity over the inevitable disruptions to growth that will emanate from the fallout over the coronavirus. Round one to liquidity. But the liquidity seems to be flowing ever more towards the US. This gives an acceleration of the American Exceptionalism paradigm. The combination has driven US growth stocks to new highs on an absolute and relative basis, the USD higher and US bonds higher in price/lower in yield as havens against instability.

This is an unstable set of relationships, but for now momentum remains in favor of the US.”

Speaking of momentum, here’s another familiar name to the blog, Oaktree’s Howard Marks:

“Momentum investing might enable you to participate in a bull market that continues upward, but I see a lot of drawbacks. One is based on economist Herb Stein’s wry observation that “if something cannot go on forever, it will stop.” What happens to momentum investors then? How will this approach help them sell in time to avoid a decline? And what will it have them do in falling markets?”

I can easily be taken to task on our departure from the growthy asset mix we maintained from the bottom of the last bear market to the latter part of last summer, given the parabolic move in stocks that’s occurred since the Fed turned on the printing press in a big way in September. But here’s the thing, as Herb Stein observed, “it will stop.” Of course, no doubt, anyone who would dare take a money manager to task for recognizing and accounting for classic late-cycle risk would also dare to suggest that he/she would, on his/her own, be nimble and quick enough to exit the minute the momentum party lights begin to dim.

Well, having personally experienced every party’s end since 1984, I can tell you that most of those who’ll decide to drink right up to closing time will find themselves too inebriated to believe that the fun is actually coming to an end, and I mean for good! Heavens no! The initial dip will surely be just another intermission; a trip to the restroom for a few heaves into the toilet, then back onto the dance floor, and to the punch bowl — for more. 

Addressing the three questions at the end of Marks’s quote above — I’m afraid, alas, that those momentum drunkards will end up being the folks Keith McCullough referred to in this morning’s quote who lost half their 401(k)s twice in 20 years, without getting divorced.


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