• trading

14 Oct 2021

Market cycle psychology

I used to subscribe to Bill Fleckenstein’s daily post. It was interesting, but Bill suffers from being a perpetual bear, waiting for the Japan panic of 1992 to occur again in equity markets. To be fair, Bill says that you can’t prosper as a bear in a bull market, and we’ve had a bull market in everything since 1981 when Volker persuaded us that the Fed could save the world.

Jamie Dimon said again the other day that he believes that bitcoin is worthless. He also said that he wasn’t going to pass up the chance of making a profit by selling it to clients of JPM, which you might think was a tad cynical if you had never heard of Jamie before.

Bitcoin trades in a choppy directionless way, or at least has done for the last six months, as this chart from Trading View shows:

For me, Bitcoin is the ultimate indicator of sentiment: a worthless asset with good price discovery, the price of which is (I think) hard to manipulate in a coordinated way.

Downloads of Robinhood, the app, have cratered. Chamath and Cathie are yesterday’s men (and women). Investors have learned that SPACs are the road to riches, but only for the sponsors. Central banks around the world have started tightening. Labour has started to flex its muscles, relative to capital. Maybe this is a point of inflection. Maybe this is just my fevered imagination and bias confirmation surfacing again. Time will tell.

1987 all over again?

I was working for the UK Stock Exchange in October 1987. On the working day before the 1987 crash, the systems went down, because there had been very high winds, which had wreaked havoc with the telephone system (remember when this was important?). “Telegraphic Transfers” (as they were still called, although I think that Telex had replaced telegrams) failed, causing house sales to fail to settle (or “complete” in the jargon). The weird thing is that nobody seems very clear what caused the crash, or why the real economy wasn’t really impacted at all. This article is about what we can learn from Black Monday of 1987, which as I have said, isn’t very much. The favoured explanation of the time was that “portfolio insurance” was to blame. This seemed to be accepted, but in retrospect, this seems very unlikely. It’s not as though investors do not hedge themselves against a crash, and it’s not as though gamma squeezes never happen. I think what we can learn is that market crashes can come out of the blue.

– H/T to The Water Coolest for the link to the Barron’s article.

1973 all over again?

There are stories of strikes hitting the news again. John Deere is the latest employer to be hit. There are stories of shortages of fuel and … well everything, but today zinc and over the last few months oil and gas. There is a flattening yield curve, as central banks move to tighten at the short end of the curve. Mini skirts and flared trousers are suddenly back in fashion. Well, I made that last one up, but it could happen!

Russian rouble redux

Putin is not a fan of the Fed.. He thinks that uncontrolled money printing will damage the dollar. Emerging markets understand this stuff. Just look at the 1997 East Asian financial crisis. They won’t make the same mistake again but the dollar has exorbitant privilege, right? So, nothing bad can happen to it: the dollar milk shake theory survives.

SOS Starship Enterprise!

From Alex Manzara’s post today:

Obviously, the CBs are not being particularly vigilant, inflation expectations seem to be coming unmoored, and the market is close to taking matters into its own hands.  The Fed appears to be boxed in.  Crude oil this morning near a new high with CLX1 trading up 95 cents at 81.39.  China’s Factory gate inflation “rose to a record on soaring commodity prices, but weak demand capped consumer inflation…” (RTRS).  China PPI was +10.7%.  US PPI on tap for today expected +8.7% with Core +7.1%.

Tullock paradox

Robert Reich has written about how four Democrat elected members are sabotaging moderate attempts to control the cost of prescription drugs in the USA. This reminds me of the Tullock Paradox: (economics) The apparent paradox that a rent seeker wanting political favours can bribe politicians at a cost much lower than the value of the favour to the rent seeker. Although the politicians were given really quite modest bribes by Big Pharma, they are willing to sell their souls. It’s as if they are not even pretending any more. Well, probably nobody knows, or cares. US voters just know that drugs cost an insane sum, but that’s what it takes to have a world-class health care system. It’s funny how, basically, the citizens of every country believe the same thing. It’s as if it would be too painful to check the facts.

Stock of the day: Dorel Industries

This post gives an overview of Dorel Industries. It’s a boring company in a boring segment that survived a private equity bid earlier this year. I don’t know much about it, but it seems to have a plan to sell of its bicycle selling business and use the cash to reduce leverage. It seems to have a significant level of family ownership (with A and B shares, presumably giving the family more control).

It has had a bit of visibility lately, which is probably good for the stock price. It’s hard to say if it truly is a buy, but I’d certainly prefer it to $ARKK. Maybe a pair strategy would work, but it’d be hard to execute. Your call. I don’t own any, but I am tempted to buy a few shares.

– H/T Alpha Letter

Wrap

Great number for new unemployment claims in the US. Equities, commodities, forex reacted as expected. Bonds were barely affected. Presumably, the increased threat of inflation was exactly counterbalanced by the idea that with this rate of recovery the Fed is closer to the point of taper.

Nat Gas, uranium and the VIX were hammered, the earlier two because they had got ahead of themselves, the latter because investors sold puts. Presumably.

$THG:LSE bounced 10% after some pretty dire days. I’m pretty sure it’s another Ponzi, but it’s risky to short any equities in this market.