Monday, May 1, 2017

Bit Like 2015 But Worse

With the way that we've been chopping around the past couple of months after a big up move, it reminds me of 2015.  I hesitate to say we will move the same way, because obviously some things have changed, but technically, and price action wise, this looks like a more subdued, lower volatility 2015 redux.  The only difference this time is that you have a potential fiscal stimulus catalyst in the form of "massive" tax cuts, which will likely not be revenue neutral.  Back in 2015, there was nothing to look forward to.  Now, there is, which makes a big difference psychologically for the equity investor.

The equity market always thrives on hope, and carrots in front of it.  The carrot is that massive tax cut.  That is the only thing better than 2015.

Fundamentally, aside from that, everything is worse, not better than 2015.  Worse valuations.  Worse demographics (getting worse slowly year by year).  Worse economic situation in China (more debt, more pressure on yuan).  And most of all:  worse monetary policy (higher interest rates, tighter, potential balance sheet/QE reduction).

Something to think about when considering trades over a longer term time horizon.  If you are long equities, be quick to take profits at this level.  If you are short, and can hang on to the position, then you will eventually get paid.  Don't forget the big picture, and remember betting on a bubble to happen is betting on an outlier event that usually doesn't come.

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