The collision of global markets and social mood

Monday, July 25, 2016

Notes From Vacation

It's been quite a few weeks. Vacation is great. And the amount of hidden data nuggets I've uncovered while taking it easy has been astounding.

Deutsche Bank noted that on an adjusted basis, using the historically low level of short rates, "the yield curve has been inverted for some time," and that the bond market is just 40bps from an implied recession probability of 70% which has signaled the last two recessions.

BofA also noted the same yield curve inversion when adjusting for the trillions of Fed liquidity support.

BofA also noted that the $3 trillion pension industry is running a $500 billion funding gap which could cause entire pensions to be offloaded from corporate balance sheets to insurance companies. Wondering if insurance companies could be a Big Short if the bond market is approaching a generational peak.

Meanwhile, Wells Capital Management's perennial bull Jim Paulsen revealed some accidental subtext when he explained his call for more upside, noting that a "cascade of change is coming." Since accidental subtext is subconscious communication at odds with intent, maybe we should pay attention to the cascade part.

Elsewhere, T11 Capital Management's June 2016 Client Letter is a perfect example of vehement trend extrapolation.

"Billionaires are only too eager to tell us all how peasantry awaits any individual who trusts in the global economy to provide any form of prosperity going forward. Soros, Druckenmiller, Rogers, Icahn, Bass and Grantham to name a few . . . It's not difficult to figure out where we are currently in the greed/fear cycle. Portfolios should be positioned accordingly."

The vehement fund manager does not stop there.

"Predicting bear markets on Wall Street is the sport of invalids. Unfortunately, the present condition of the public makes invalids the majority population on Wall Street. It shouldn't be a surprise then that a majority of investor's time is now occupied by fetishizing bear markets."

No mention of the many years of extreme bullish sentiment since 2000, or of the current laundry list of generational valuation metrics in the 99th percentile.

"The attempt to gain alpha from either protecting against a bear market through various hedges or getting net short at some point in time is a waste of energy and resources. The primary reason is because in 1915, 101 years ago, the Dow was at 55. It is currently at roughly 17,000. Markets go up over time."

A waste of resources . . . Markets go up . . .

"If somehow we were in some type of reverse parallel, holographic reality where financial markets consistently went down over the past 101 years, then I would be a total advocate of shorting stocks, without worry for when they will go up. Point being that when the natural forces of time work in the outright favor or absolutely against something, they shouldn't be argued with, debated or attempted to be timed for fear that nature will reverse itself based on fluctuating, random sets of data that are presented on a daily basis."

In other words, don't argue with the trend, don't debate it, don't attempt to time it. Just close your eyes and ride it. The type of thinking that indicates that the trend is in danger of being a victim of its own success.

As if to echo such sentiment, a recent Marketwatch headline offered "How To Get Started Buying Stocks."

And so we transition to the current state of social mood land, where an astounding number of clues are there for the taking.

Insanity seems to be everywhere.

Tesla's Insane, Magnificent New Master Plan,, July 21, 2016

How You Can Book Etihad’s Insane First-Class “Apartments” With Miles, Bloomberg, July 20, 2016

An ‘insane’ number of catalysts are poised to roil vulnerable markets this week,, July 25, 2016

In ridiculous news, used Porsche 911 Rs are selling for almost $1 million. That is an insane 7x markup over the original MSRP of $186K., July 22, 2016

Nvidia’s new Titan X is the most insane graphics card ever made,, July 24, 2016

What's even more insane? Gold is for eating again.

Just like Japan's lust for edible gold flakes on sushi in 1988 just before the Nikkei's all-time high of 39,000, in 2016 it's the humble hot dog's turn.

Social mood actually seems to have gone stratospheric.

Golf, the ultimate bull market sport according to ANZ's chief investment officer and longtime socionomist Kevin Armstrong, just got a crazy new James Bond toy.

Even the New York Times embraced the term.

Music wise, back in gloomy 1979, just before the start of the epic bull run in stocks and bonds, musician Herb Alpert topped the charts with an upbeat jazz-disco instrumental entitled "Rise."

In 2016, we've come full circle with Katy Perry's new single "Rise" about striving to overcome adversity, and which has become the anthem for the Rio Olympics "ravaged by crisis" according to CNN.

The dark lyrics to Rise sound eerily like a market propped up by central banks:

When, when the fire's at my feet again
And the vultures all start circling
They're whispering, "you're out of time."
But still, I rise
This is no mistake, no accident
When you think the final nail is in; think again
Don't be surprised, I will still rise

While history often rhymes, another 37 years of uptrend seem wishful.

Finally, a bit of anecdotal news echoing 2006-2007 when my parents couldn't get anyone to do small jobs on their house: it's happening all over again. It's even happening in Puerto Rico where there's supposed to be a brewing humanitarian crisis.

Phone calls are not returned. Jobs are left unfinished. No one wants to do the little stuff while larger projects are available in quantity.

Luckily for my parents, I work for beer.

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