Morning Note: Go Big!

“The market” (traders/investors in the aggregate) has seen incoming treasury secretary Janet Yellen’s prepared remarks for today’s presentation to congress, and it’s liking her pleas to use the low interest rate environment to go big on borrowing and spending.

Hmm… Does “the market” know what’s good for it, in the long-run? Well, time will tell, but like any addict (yes it is indeed exhibiting addict-like tendencies) it knows what feels good in the short-run…

Yesterday a client asked me if the amount of newly minted money being thrown at markets is unprecedented. I answered, “well, yes, which was also the case in ’08, and in ’00.” In fact, the process of essentially socializing markets — well, socializing losses (subtly borne by the taxpayer) while privatizing gains, that is — demands that each attempt at saving markets from natural forces demands more intervention than did the last.

As the authors of The Rise of Carry (a must read for anyone willing get into the weeds to understand today’s markets) point out:

“The interventions of central banks, in which the central banks take on the role of giant carry traders themselves, create a carry regime with much larger carry bubbles and carry crashes; during the carry bubbles, risks become seriously mispriced.”

“…as long as the carry bubble goes on, capital flows to the imbalances, so everything appears all right. This ends when the carry crash hits, and liquidity evaporates.”

Or I could simply say that over time it takes more and more of the desired stimulant to keep the addict “satisfied.”



Asian equities leaned green overnight, with 9 of the 16 markets we track closing higher.

Europe’s tilting toward red this morning, with 11 of the 19 bourses we follow trading lower.

U.S. major averages are nicely green (although breadth is sketchy) to start the day: Dow’s up 119 points (0.39%), SP500’s up 0.51%, Nasdaq’s up 0.76%, Russell 2000’s up 0.42%.

I mentioned breadth: As I type, utilities, consumer staples and telecom stocks are in the red, financials are flat, and over 40% of the S&P 500 (and 13 of the Dow 30) members are trading lower.

The VIX (SP500 implied volatility) is down 5.14%. VXN (Nasdaq i.v.) is down 2.64%.

Oil futures are up 1.26%, gold’s up 0.71%, silver’s up 1.92%, copper futures are up 0.98% and the ag complex is up 0.18%.

The 10-year treasury is down (yield up) and the dollar is down 0.29%.

Led by energy, emerging market equities, silver, oil services and industrials, our core mix is up 0.59% to start the day.



While, indeed, we are actively engaging in areas of the world market that we deem opportune, we remain very cognizant of history and of probabilities, and, thus, of historical market tendencies. 

Hence my constant warnings to keep your heads about you.

“…while superior investors—like everyone else—don’t know exactly what the future holds, they do have an above-average understanding of future tendencies.”

–Marks, Howard. Mastering the Market Cycle: Getting the Odds on Your Side

Have a nice day!
Marty

 

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