A Bullish premise and prospective !

 

 The Bullish take: After many an banking analysts has loaded up on their warnings that the euphoric burdened market is due for a correction to ease some of the massive retail euphoria (some of that froth and euphoria significantly has shifter these past few weeks to squeezing the shorts within the most shorted stocks hard-to-borrow plays), a renown self-serving bullish hypster , one of the herd’s [talking up his own book] biggest permabulls, did just that when JPM's Kolanovic urged investors to ignore warnings about a the mega bubble (On Wednesday) I have been warning you all about incessantly!  As despite clear evidence of a mega bubble everywhere you look, he stated to just buy the dip like Pavlov’s conditioned trading-bots-dogs on any selling from the feud between retail investors and hedge funds. Conceding that we have “seen a number of strategists calling for a market correction or indicating equities are in a bubble” coupled with recent “turmoil related to trading activity in small highly shorted stocks” the JPM quant so called guru disagreed strongly and said that professional investors are far from bullish, as the firm’s model tracking computer-driven strategies to stock-picking funds shows their equity positioning sat in the 30^th percentile of a 15-year range (which, of course, is a reason that the VIX remains remarkably sticky and volatility control strategies simply have not been able to leverage up to historical levels, but we should not expect Kolanovic to dwell too much on what's really going on if there is an JPM agenda to be promoted). Nevertheless, according to the Kolanovic, there are 3 main reasons for the firm's (perpetually) rosy outlook:

• Ø Overall equity positioning is low in a long-term historical context, and they expect it to increase!
• Ø  We expect the Covid-19 pandemic to rapidly subside on the back of vaccines and population immunity (which they believe has already started to happen)!
• Ø  They expect monetary and fiscal support to remain in place and grow substantially (on tis I agree) likely driving increased consumption, global trade, and demand for goods, thus supporting higher inflation (something that I do not agree with).

“In that light”, Kolanovic notes, “any market pullback, such as one driven by repositioning by a segment of the long-short community (and related to stocks of insignificant size), is a buying opportunity, in our view.”  He then provided some more detail behind his three core views, starting with his view how funds apparently are not that bullish, despite this week’s mauling of the most popular hedge fund positions which are being dumped in masse ahead of upcoming anticipated liquidations to likely meet margin calls; Positioning across risky asset classes, and in particular in equities and commodities, in a long-term historical context is low. Also that 2021 should be a transformative year of Covid-19 recovery!

 

Ironically, in a week when stocks were smacked around and the VIX is rising above 33 on its way I believe to 39.00 then 46.75, Kolanovic once again goes against the grain and expects the VIX to magically drop just because: Ge stated that “We expect the VIX to decline into the mid-to-high teens and positioning, accordingly, to increase from the ~30^th to ~60^th historical percentile. He went on to state that realized volatility has already declined significantly (SPX-500 realized volatility ~10 vs VIX ~25 is a near-record spread). Given the low levels of inflation over the past decade, global trade war, and recent pandemic, the exposure of investors to equities and inflation protecting assets such as commodities is also very-low (as compared to pre-Great Financial Crisis era). Of course, if the VIX does not decline but keeps rising, expect as Clubber Lang stated to Rocky “expect pain”. He then focused on the pandemic and clearly ignoring the warnings that mutant Covid-19 mutating strains will become a real medical drain over the globe and will hit here in the US as well, as such he wrote that he expects the global Covid-19 pandemic “to decline rapidly in the coming weeks.” He believes the increase in cases and deaths over the past few months was “Holiday exposures” and the beginning of large-scale vaccination programs in the US, [the current vaccination pace is to approximate 1-million vaccines a day]. And given the estimation of natural immunity (cumulative cases), current pace of vaccination, as well as other considerations (e.g., the impact of warmer weather, variation in susceptibility here), he expects the pandemic to effectively end in 2021/Q2. In addition to the positive impacts of the above drivers, there is also a positive feedback loop between them, which he believes will lead to a rapid decline in hospitalizations and enable a mega fast reopening of economies this spring (I wonder how many businesses will still be standing).

ü  The only question is whether the new administration will help him to become right, or will lockdowns have to extended in hopes of getting even more stimulus from Congress/Powell.

He focused on the source of the bubble (but there is no bubble in his opinion) just a very real bullish move, due to Fiscal and Central Banker manipulation 😊. He writes that they should “remain very accommodative given the elevated unemployment levels and over a decade of low inflation running below their targets.” He' might be somewhat right as almost all central bankers including our FED are trapped and they can never again tighten or else they will unleash the mother of all stock market tantrums that could lead to a serious implosion. It is also likely why the FED recently revised their entire “BS” inflationary framework, effectively giving itself a huge proverbial greenlight to keep injecting over $120 billion per month of liquidity (Buying new-debt bonds from the massive deficit debt) in perpetuity even if home prices are surging by over 10% annually [creating another mega housing bubble in my opinion] as they are now. He went on to note that “fiscal support for individuals and businesses harmed by the pandemic will also likely continue and be a significant driver” [a likely driver of the most shorted stocks that we have been seeing of late as the new stimulus is gambled via the stock market)

He went on to states that “the monetary and fiscal backdrop of 2021, along with the strong recovery from Covid-19 and relatively low positioning in risky assets, should be a huge positive for stocks and commodities and negative for bonds.”  His conclusion: “short-term turmoil, such as the one this week, are opportunities to rotate from bonds to equities.” Then at the end of the report he then admits that while his view is positive, we do acknowledge that some market segments are most likely in a bubble. This is a result of excessive speculation (including but not limited to retail investing) as well as perceived benefits for these segments from the Covid-19 pandemic and related political trends.

I am seeing massive signs across the market of speculative excess are everywhere. Penny stocks soaring like moonshots. Cash has been pouring into trendy solar and EV bets; huge risky debt paying less than ever; huge gains in zombie stocks these unhindered and unrestricted animal spirits and historic valuations levels bear-watching 😊 as it is imprudent to hope and pray that there is a greater fool lurking out there for you to unload to it you keep buying at these nose-bleed levels! Retail traders are currently fueling the most speculative trading strategies, the market for new issues (IPO’s and SPAC’s) is booming, while short interest in the SPY is near decade lows. 

Data has consistently shown that overall stock buying rose after the last round of pandemic-relief checks was issued, and it was not just the retail crowd. A record number of investors with ~$560 billion overall say that they think they are taking significantly higher-than-normal levels of risk, according to Bank of America’s latest survey “Are there any bears left?” Even Goldman Sachs says “unsustainable excess” is evident in very high-growth, high-multiple stocks and across special-purpose acquisition firms, or SPACs.  That is the same view echoed by Citigroup however they diverged saying weighed global equity prices on both a relative and historic basis and concluded even expensive U.S. shares could have more room to run. “We would never advise anybody to chase a bubble,” they wrote on Friday. “It could burst at any time. But if CAPEs were to hit previous highs then the U.S. indices could go up significantly higher!”   

Incessant hot IPOs, a rise in thematic investments [Thematic investing is a form of investment which aims to identify macro-level trends, and the underlying investments that stand to benefit from the materialization of those trends. a renewed boom in day-trader activity and “dramatic runs” in EV’s, Solar and cryptocurrencies are all reasons why bubble anxieties have emerged, JPMorgan strategists led by Mislav Matejka wrote in a research note this past week...In a market awash with “excess” central bank liquidity, it is a debate that will continue to rage. One aspect of that debate is the risk the same reflation trade boosting stocks comes with a sting in the ass for debt investors.

With benchmark treasury yields failing to break above 1.2%, hosts of investment-grade debt offer yields near or below zero.  History has shown me in the past that money can be made as mega bubbles inflate. However, we will not be able to evade a real bear market that will come, but before then markets may get more frothy before logic and reality sets in.

Today this market in my opinion is very-very euphoric and 90% of the easy and prudent LONG-side money has likely been made already, there are few opportunities I like, to make long-side longer-term money you have got to find a proverbial Goldilocks environment.

Please note: “hedge fund short sellers” an “NEW” abundance of US household bailout stimulus payments could continue to fuel the recent retail trading boom. The equity market peaked in 2000 and this occurred following a year in which household credit card debt rose by 5.3% and real consumer checking deposits declined, then bang during 2020 credit card debt declined by more than 10%, checking deposits grew by $4.2 trillion, and savings grew by $5.1 trillion. On top of these savings, many economists expect more than $1 trillion in additional fiscal support in coming months, including another round of direct checks. Although the level of net margin debt currently represents 0.9% of US equity market cap, similar to the 1.0% share in 2000, it reached 1.2% in 2018. And the 35% increase in margin debt during the past 12 months pales in comparison to the 150% rise we saw in 1999!