Morning Message: The Carnival

In yesterday’s morning note I pointed out what motivates policymakers these days (the market). If you happen to struggle with that, with my cynicism that is, well, struggle away. 

It’s not that I don’t get that a buoyant market leads to confidence and a buoyantly-spending consumer, it’s that 36 years of experience and the study of 360+ years of history tells me that such irresponsible pumping of markets and allocation of public resources tends to ultimately lead to extreme financial pain, not only for the unsuspecting investors who get sucked in, but for the folks who truly need the help, as deflating bubbles deflate the desire, if not the means, to consume beyond one’s basic necessities, destroying opportunity in the process.

So, yes, absolutely, let’s get another stimulus package going, but let’s leave the hedge funds and private equity firms to their own devices and get the goods down to where they’re needed most. 

Well, minutes before the stock market open this morning Treasury Secretary Mnuchin — rescuing an equity market that a short time before was flashing a down 300-point Dow — announced that he and Speaker Pelosi will be together this afternoon. He’s hoping they’ll agree on the next round of fiscal stimulus. 

Now, don’t get me wrong, I love a stock market rally every bit as much as the next fella, it makes for happy clients. It’s just that managing money is not about gaming headlines, it’s about forever grasping the prevailing risk/reward setup underneath the daily price action. More on that in this week’s main message coming to you shortly…

Asian equities were mixed overnight, with 7 of the 16 markets we track closing in the red. Europe rallied out of the red on U.S. stimulus news this morning; all but 3 of the 19 bourses we track are now nicely in the green. As for the U.S.: Dow up 379 points (1.41%), S&P 500 up 1.04%, Nasdaq up 1.13%, Russell 2000 up 1.03%.

The VIX (SP500 implied volatility) is down -3.27%. VXN (Nasdaq vol) is down -0.99%.

Oil futures are up 0.51%, gold’s down -0.62%, silver’s down -1.56%, copper futures are up 1.57% and the ag complex is up 0.78%.

The 10-year treasury is trading lower (yield higher) and the dollar is down -0.06%. 

Our core allocation, buoyed by banks, emerging market equities, industrials, materials and financials is up 0.55% as I type. The holdings that kept our core portfolio roughly unchanged yesterday (as stocks fell), gold in particular, are having a bit of a muting effect this morning.

I’ll leave you with this timely quote from what will now rest near the top of my list of must-reads for every serious investor, Devil Take the Hindmost, A History of Financial Speculation:

“The speculative mania reverses the nostrums of capitalism such as devotion to a professional calling, honesty, thrift and hard grind. Like the carnival, it provides only a temporary release since when the mania collapses these values are reinforced.”

Next up this week’s message, then I’ll catch you either late-Sunday or early Monday.

Take care,


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