I am long term bearish on the stock market, but there are a few things that are favorable for longs.
1. Money supply growth. This is the biggest positive for the bulls, and it is unlike any rate of M2 growth when the stock market is at an all time high. Usually, when stocks are at all time highs, the Fed is not doing a lot of QE and signaling that it will stay at zero rates for years. From March to June, M2 was growing at a 65% annual rate, and while it is slowed down from June to December to a 14% annual rate, that is still very high, higher than anytime from 2010 to 2019. When money supply grows much faster than the demand for goods and services, it goes to asset markets, the big 3: real estate, stocks, and bonds. If the supply of those 3 don't go up enough to meet the demand, then prices have to go up, regardless of valuations.
2. Monopolies and oligopolies. Over the past 40 years, competition for almost all industries has gone down and profit margins have gone up. Nothing from the US government is signaling a change in policy. There is no desire by politicians to do anything to hurt the stock market, which means they won't want to break up monopolies for fear of hurting the SPX. Which leads to number 3.
3. Fed and the government want a higher stock market. It is clear now that the Fed has thrown away any fake concerns about asset bubbles. They don't care about financial stability. Powell tried to fight the stock market and he took the loss when he caved big time in January 2019. Since then, Powell has followed the standard Fed playbook of acting like turtles and doing nothing when bubbles are getting bigger, and acting like rabbits and immediately bringing out the bazooka at any sign of a weaker stock market and/or even a sniff of a weakening economy. Powell now knows that he's only liked and given good reviews when the stock market is going up. SPX is going up = good monetary policy. SPX is going down = bad monetary policy. So naturally he will do anything to make the stock market go up.
Note that I mentioned nothing about the Covid vaccine or the pent up demand for travel and services. Those are positives for the real economy, not the asset market economy. A lot of people confuse the two and that is the biggest reason for macro bets that go bad.
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7 comments:
Would you short QS here? This is one place where options are available but the pricing is so bad that I am unable to put on a trade. And would you short with some stop loss in mind if it goes crazy?
Puts are too expensive. I would just short calls. No stop, just don’t go in too big
Let me add, I would not short QS today, I think you could possibly get a better entry next week. I am just watching QS for now, along with MVIS, UAVS, and FCEL. Bubble basket.
Would you wait more for QS - lot of downside just trying not to go for horrible timing
The puts are so expensive, they are trading 270% IV on ATM puts. Its insane. Also, calls are trading only 110% IV on ATM calls. So can't really play it with options that profitably at those levels. And short borrow rate is 300% even though it has pulled back to 100. I'll just pass on it for now, but do think it will go down big eventually, but will bleed either theta or have to pay a lot in short borrow fees while holding.
cool, thanks for your insigths. one more question - what do you think of tsla? disclosure - i have 600 strike jan and march puts on tsla. while i dont se an immediate trigger, dont want to be not in the trade when it crashes eventually
I am bearish on TSLA long term. Looks overdone here, could be capital gains avoidance by some TSLA longs and they probably sell early January. Don't think there is huge downside though over the next month or so. Maybe get down to 620 at most.
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