Morning report

Everything seems pretty flat. Nasdaq & Apple continue to defy gravity. International equities have quite a dispersion. Generally China up, rest of Asia down, Europe down. SPX futures down a tiny bit, Nasdaq up 0.3%

It’s hard to get a feel for the overall tone of the markets, but the FT was pretty downbeat today. Sunak’s giveaways will push the deficit to GBP 350bln, which maybe a price worth paying, but can only spread the pain, not take it away. A lot of industries will clearly never be the same again.

Bill Fleckenstein tipped WDOFF: he rarely sees a stock he likes. It’s a small cap and has no derivs, so I just mention it.

VIX July future now below 30. Hurrah, the pandemic is over!

Hong Kong looks increasingly grisly, but Chinese and HK stocks continue to go up. Stock price manipulation is against the rules of the Shanghai and HK exchanges, so we can’t be 100% confident that this is not the explanation.

Things that are impossible to believe

Charlie Bilello nails a few mind boggling things about this market:

• Stocks can’t go up, and up, and up in the teeth of a recession,
• the popularity of technical analysis is matched only by its failure to explain simple charts ($HTZ, $ZM given as examples),
• Even when a stock is just a way of holding another, easy to value, asset, the stock price can still zoom far above “fundamentals.” ($ETH)
• Commodity prices cannot below zero (we all know what this refers to),
• Stein’s Law holds for interest rates (still going down after nearly 40 years!),
• It’s impossible for a company with no sales or earnings to be worth $26bln ($NKLA),
• … and so on for another half dozen examples.

Charlie points out that it’s too easy to think “that can’t happen” and invest accordingly. Maynard Keynes said the same thing when he talked about markets remaining irrational for longer than he could remain solvent. Jesse Livermore talked about the importance of getting in at the beginning of rallies, because without the initial profits the reversals would be enough to make people get out before the end: the early profits (irrationally, because they are sunk) are enough to make the speculator hold his position.

For me, the most irrational trend of all is interest rates: going down for all of forty years. I frequently blog about the possibility of seeing inflation, which would finally end the trend, but it’s still not here. Here is the chart:

Wrap (written early, 16:40 London Time)

Seems like the market has decide it’s risk-off time. Dollar up, everything but soft commodities down (lean hogs roaring!). Equities down even Nasdaq. VIX up. We’ve had so many false dawns, but maybe this is it.

(Added at 21:35) Nasdaq back up (0.73%) but SPX down (0.6%). Very wide divergence. Global equities all down. Copper still up. 10-year treasuries up 0.17% (yield dropped 3bp).

Personal

I actually went out to eat in a regular restaurant this evening. It is a popular venue and would normally have been full on a Thursday evening. It was 80% empty tonight. This recovery is going to take a long time.