January Market Run!

By | February 6, 2019

There is not shortage of nut cases out there who make outrageous claims and issue dire warnings every 5 seconds for the last 50 years.  Statistically, some of them is going to be right at some point.  

Some of these “experts” and self proclaimed experts just come on Youtube or some other venue and run their mouths.  But some present data. And although for the most cases they do not make sense, the data presented is usually valuable and have some residual educational value.

This video here (https://www.youtube.com/watch?v=hA0g-bi9-1Q) was is talking about the trigger that is going to bring the market down.  But at minute 5:54 he brings up the “global central bank balance sheet”.  And one look at what happened from October 2018 till early January 2019, explains why the markets are having a run. It all makes sense. If the US market were run up by the FEDs easing, then why would not the global markets, and the US as a secondary effect, be also run up by global liquidity. This give more credit to my thesis of super-marco event. The thesis states, that picking stocks (sectors, individuals, geographical, etc…) is only a perturbation to the market motion.  The latter is now impacted by policy more than economic conditions. The policy means cheap money in one form or another and from one source or another.

As I tried to look for this “global central market bank balance sheet”, the only thing that I found of relevance was this paper by Yardeni research (https://www.yardeni.com/pub/peacockfedecbassets.pdf) and figure 4 is exactly what the video is showing.  But it will be great to keep an eye on such and indicator if it existed.

The other pretty interesting chart that the video presented is at minute 6:26 when he talked about rate cutting cycles.  And the graph shows the inability of the FEDs to “normalize.  That also makes sense considering the growth of the national debt. As the debt grow, the way for the governments to keep up of debt service, let alone paying the debt, is to create more revenue which most likely means taxation, or reduce expenses.  The latter can be done by either doing the right thing, reduce expenses, or doing the wrong thing, make it look like we reduced expenses.  That is done by borrowing more money, spending more money and lowering interest rate. So, as long as the national debt is growing, do not believe that the interest rate will ever be larger than they were in the past.  For the phony economy that has been created (credit economy not production economy), interest rate and national debt are inversely proportional forever.

This article also talk about the RSI, and I have heard a lot of “over sold and over bought” talk, I just do not believe that it is as accurate of an indicator to rely on for trading. It is usually lagging, and over swing from one end to the other.  Yet I will be paying more attention to its reversal to use a in conjunctions with others.

The “Cumulative US Equity Flows” is also a great indicator and is shown in minute 8:28.  But I cannot find any source of his data. Nevertheless the data seems consistent with some other publications such as this paper from PIMCO.   This paper also brings up two tangential ideas.  One is to invest in the highest GDP rate economies. Two, short the highest CPI currencies against the dollar.

Finally the video revisit the idea of corporate bonds, in particular BBB.  Well, we know that as interest rate were rising, companies were going to have hard time paying their debt.  Let alone that the grades of the bonds is rigged anyway and most likely the BBB is way less than that.  The video makes reference to Steve Eisman remarks on BBB as well (Ref 1).

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