Morning Note

Fed corporate bond buying, well, the Fed funding a taxpayer-backed special purpose vehicle to buy corporate bonds (same thing, but ostensibly makes the illegal legal), a pending trillion-dollar stimulus proposal (yes, we’re — at the margin mind you — adding a bit of materials exposure this morning to our core portfolio) and a revived thrust in FOMO (fear of missing out) has the market in abrupt turnaround mode after last Thursday’s (Dow down nearly 1,900 points) epoch drubbing.

Oh, and not to mention, retail sales numbers and industrial production are due out this morning. Of course both are going to see huge bounces that I suspect will add fuel to this mornings bullish fire. The fact that we’ll be bouncing off of the worst readings on record will be mere detail that, at least initially, the market will likely dismiss out of hand.


Sunday night’s “sea of red”, as I put it yesterday morning, in Asia morphed into an amazing flood of green last night; Japan and South Korea saw rallies north of 5% and 6% respectively. Europe’s following suit this morning and U.S. Equity futures point to a 600-point rally in the Dow (recall it was a 600-point selloff yesterday morning) and equally-impressive rallies in the S&P, the Nasdaq and the Russell 2000.


Forgetting, only for the moment, fundamentals, absolutely!, Fed backstopping credit investors (not the actual corporate borrowers themselves, by the way [i.e., doesn’t remotely solve the insolvency problem]) along with the prospects for yet another trillion dollars of government debt being strategically-directed onto the economy is textbook reason for at least a short-term rally in equities.


So what are we to make of these monster moves in equities? Again, 1,900 Dow points down, 850 points up (yesterday’s trough to peak action), 600 points (at least) up this morning, who knows next…


Well, frankly, it’s classic bear market stuff. Meaning, such huge swings historically-speaking virtually only happen during bear markets. And when bear markets occur during recessions, well, such volatility tends to cluster for an extended period of time. Which is a topic I’ll take up in tomorrow’s weekly message.


Here’s a teaser:


S&P 500, 100-year daily rate of change:



One more thing, from last evening’s note:

“…unemployed millennials and sports bettors, in my view, can’t generate a 40% rally all by themselves. Ah, but converging at the bottom of the initial bear market selloff, accompanied by record monetary and fiscal stimulus, short-covering futures traders and, critically, the crowd of investment pros who were caught unaware at the top (who, fearing for their livelihoods, and, thus, fearing missing out, were essentially forced to join the crowd), well… absolutely, you have the recipe for a serious rally in stocks.”

From Bloomberg’s Lisa Abramowicz this morning:

“It’s not just Davey Day Trader buying the recent rally. Fund managers’ June cash levels dropped from 5.7% to 4.7%, the biggest decline since Aug’09, while hedge fund net equity exposure soared to 52% from 34%, the highest since Sept’18: BofA Global June Fund Manager Survey.”






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