What If There Is No Tomorrow?
There’s been an abundance — nay, “cesspool of rotations” ever since the Fed announced the beginning of the end the tapering. “Many were positioned this Jan for US macro liftoff. Once weaker-than-expected Q1 data caused the Fed to ‘blink’ in March, an immediate painful US$ peak, biotech selloff and trough in oil prices ensued.” Remember that? About 6 months ago no one felt like chewing Mario Draghi’s grass? Well: “investor appetite for U.S. stocks has slumped to its lowest level in more than seven years. Though the S&P 500 has hit three new highs in May, the region has suffered its biggest drop in equity allocation since September 2008, with the number of investors overweight U.S. equities declining to a net 19% in May, according to [Merrill Lynch’s] monthly fund manager survey…Only 7% of those questioned cited the U.S. as the region with the most favorable earnings outlook. The vast majority prefer Europe and Japan, where central banks are still committed to quantitative easing programs.” “Not unlike the 1993 comedy ‘Groundhog Day,’…investors are doomed to relive a perpetual daisy chain of mediocre U.S. economic reports and lackluster returns from risky assets…Until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause a market or macro shock (as it infamously did in 1937-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes.” And Icahnic tweets: “Amidst this light trading volume environment, it does not take much to get markets moving.” For example: the “market-moving impact of Carl Icahn, who tweeted on Monday that Apple is worth $240 a share. That kick-started a rally in [Apple] and, it seems, the entire U.S. stock market…It is surprising to hear so many investors deny the bubbly nature of this market when such moves are now commonplace.” Meanwhile, Tobin’s Q is getting a lot of attention suddenly: “Valuation tools are being dusted off around Wall Street…If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over. That (literally) is the math behind a bear case on equities that says prices have outrun reality.” Meanwhile, here are some better questions to be asking yourself. Also, what if everything started to go right in the world economy?