Today’s Log Entry

2/3/2020

China’s overwhelming stimulus last evening clearly did the trick, for the moment, despite the big selloff in its own market last night. If today’s global rally holds, Chinese stocks will likely stage a relief rally of their own this evening.

The market’s message is clearly that, like health scares past, this too shall pass — and it’s appropriately responding in late-cycle fashion. That is, traders buy the dips, suck in the long holdouts who always pile in late-cycle, and wait for the weight of excesses in the economy, excess valuations, and, this time around, an enormous global corporate debt burden to overwhelm the overwhelming global stimulus.

The above is not lost on the experienced traders presently participating; their job is to (and depends on) squeeze as much as possible out of the uptrend and hope to play the exit perfectly when the inevitable contraction finally arrives.

Invoking physics, I can articulate the present market environment from two perspectives:

First, recognizing that stocks, and companies themselves, in the aggregate, are heavy right here (valuations, concentration in very few names, corporate debt burdens, capacity to service debt in a weaker economy, or, conversely, in a stronger [higher interest rate] economy, and so on), it takes a great deal of countervailing force to halt an object that embodies a great deal of mass when it has momentum; hence this longest-ever bull market.

Second, and conversely, it takes a great deal of support to keep a massive object elevated when its momentum begins to slow; hence the record amounts of stimulus being applied to literally every hiccup in the macro environment, and every hint of deceleration in the massive object itself.

Ultimately, and this has been born out vividly by the last two bear markets, the sheer mass of conditions themselves (be they illustrated via tech stocks like the late ‘90s, credit and residential real estate in the ‘00s, or the host of factors this go round) — inflated/exacerbated by desperate stimulus measures — indeed overwhelm all efforts to keep them afloat.



The ultimate question of course is when? That’s anybody’s guess. Could still be a ways off.
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