Thursday, March 31, 2016

Investors Paradise

All you need is easy money.  It makes all the investors happy.  The unhappy ones are the ones holding cash or hoping for a crash.

Stocks going up and bonds going up.   What else is new.  We've seen this for the last 7 years.  Contrary to popular retail trader belief, a strong bond market is a long term positive for the stock market.  Bonds benefit from easy money much more than they benefit from any flight to quality or fear trade.  The risk parity paradigm is much more important than the flight to quality paradigm when assessing the stocks and bonds relationship.

Janet Yellen finally took off her balanced Fed chair disguise and showed her true colors.  She is another Bernanke.  She wants a higher stock market.  She wants a higher bond market.  And she will do it regardless of the loud but powerless Fed underlings who talk like hawks but agree with Janet when its decision time.  She even admitted that lowering market volatility is positive for economic growth.  In a rare admission to the truth that most perceptive investors already knew:  she is a stock and bond market jockey trying to keep volatility low with implied Fed puts.

Short term, this is a great thing for the markets.  Long term, it just sets up very high expectations for Fed QE bazookas during market weakness, and future tantrums if the market doesn't get what it wants.  The Fed has sold out to the financial markets, determined to give them what they want.  Easy money.  As long as they do, the markets will be fine.  If they ever decide to go away from this market supportive easy money policy, there will be a crash with blood on their hands.  In other words, they will stick with the easy money policy until you see hyperinflation.

Been watching CNBC Fast Money to look for clues to see what the traders think.  They are still bearish, but not so loud as before.  Before you had Brian Kelly screaming for everyone to go to cash, saying he's short stocks, long the dollar.  He's still yapping his bearish stocks, bullish dollar call, but not screaming anymore.  He's been totally wrong for the last 50 days.  You will hear no mea culpa from him.  It will all be swept under the rug, except in the brokerage accounts for the poor souls who actually followed his advice and lost money.

Still seeing lots of denial about this rally.  This makes me reluctant to short this thing.  The fundamentals say short equities but the market tone and sentiment says long equities.  Tough call.  Prefer to see fundamentals and other factors line up on the same side.  When you have both bullish and bearish factors at play, usually its best to wait.

This is paradise for investors.  And jail time for traders.  Long days with nothing to do.


shzhning said...

have you traded oil recently?

Market Owl said...

No, and have no intention to anytime soon.