Trade wars, buy ’em. Slow wage growth, buy ’em. Disappointing economic data, buy ’em… In fact, the last few months (years) have provided endless examples of the delusional ‘bad news is good news’ narrative as anything potentially harmful to the economy (or markets) is instantly brushed off with a nod to The Eccles Building (or its equivalent in Brussels, Beijing, or Tokyo).
However, as former fund manager Richard Breslow warns, it’s a good week to reconsider. Which is a somewhat strange thing to say during a year when we’ve been repeatedly doing exactly that. And in rapid fashion.
The answer to the question,“what do you think about the markets” has become, “I’ll let you know after the next move.” That’s some destructive mixture of fatalism and determinism that has no place in trading. So stop it.
Equity markets ostensibly want to boom again. After all, the non-farm payroll release was a Goldilocks number for share traders, tariffs are being rolled back even before they’re rolled out, Cohn’s come and Cohn’s go. And let’s face it, the BOJ and ECB hawkish fantasy makes great reading but will be a reality for another day. The BOJ won’t abandon their liquidity provisions because there’s a scandal boiling over in Japan. Stop and think about that as you think of a real reason the currency may challenge 100 to the dollar.
And, hey, if you hated the S&P 500 below 2600, you have to love it at 2800. That’s true not because the facts changed, but because of an apparent latent addiction to facial peels.
It took a brave (euphemism) trader to want to buy euros in front of the big resistance looming above 1.25 versus the dollar before the ECB meeting. I’m equally impressed with the number of people looking at E-Mini futures this morning at 2800 and willing to assume away all of the recent woes. I guess reading charts really is an art not a science.
Ask people in a quiet moment what they think of stocks and you tend to hear, hate them but they go up first. I get the concept for liquid currencies. It’s harder to use that profitably with equities. Which is why I’ve been floored in the last week or so by how many introductions I’ve received to the wonderful concept of getting in on the latest ground floor in frontier markets. I can match the capital cities to the countries, which already puts me clearly in the more up-to-speed category. But it’s a low bar.
My thoughts always go back to, if you think the world is ultimately a mess, why should I buy something predicated on that not being so. The carry on Mozambique’s tuna bonds didn’t make them not stink in the end. And is this really the time to get involved in countries you know nothing about? If the answer is yes, then you need to perhaps reconsider what that means for every developed market asset in your portfolio. And where you think they go from here.
Beware of the seemingly uncorrelated asset in your portfolio snapping right to one as soon as things go south. And any promised liquidity with it.
But if you are secretly bullish, then be bullish, not embarrassed to say so.
We have some chunky Treasury auctions coming this week. How they go seems important to me, offering a clue as to what environment investors really think we’re in. As long as the 10-year yield stays in this lousy range, be comforted that there are more people out there just as conflicted.
There are also a number of other global equity markets that appear to be at similar technical inflection points as the SPX. You may have better and worse performers, but it’s unlikely to see meaningful divergence.
What to follow? Hint, hint, hint: try to find things you think are going to move to trade and don’t seek the comfort of the old low-volatility environment by fixating on an asset that’s just locked in a range. Their, and your, time will come