There’s a very good piece of advice I’ve often found useful: ‘Never attribute to malevolence what is merely due to incompetence.’
– Arthur C. Clarke,
3001: The Final Odyssey (1997)
From its bottom on Christmas Eve to a recent peak on May 1, the Dow Jones Industrial Average added 20%. The S&P 500 Index was up by 26%, the Nasdaq Composite 32%.
A huge share of those soaring gains was attributable to just six stocks – all of them from the FANG/FAANG/FANGMAN family…
Facebook (Nasdaq: FB) was up 59%, Apple (Nasdaq: AAPL) 47%, Amazon.com (Nasdaq: AMZN) 49%, Netflix (Nasdaq: NFLX) 65%, Google/Alphabet (Nasdaq: GOOGL) 23%, and Microsoft (Nasdaq: MSFT) 39%.
These six stocks put on $1.25 trillion of market cap that wasn’t there on Christmas Eve. That’s a 40% gain.
The other 494 other stocks in the S&P 500 were valued at $16.5 trillion at the December 24 interim low. They rose by about half the FAANG+M – 22.5% to a collective market cap of $20.2 trillion.
That low-volume market-cap breakaway pummeled any dissent and smashed all residual rationality left amid this latest liquidity-driven bubble.
Even those one-eye-open gamblers who realized by the end of 2018 it was time to head for the exits – or to even sell short “Peak Trump” – had their heads handed to them. All semblance of a two-way market had been obliterated.
These are conditions that, historically, precede the arrival of proverbial Black Swans… or Red Swans… or Orange Swans…
And those tend to bring blow-off manias to abrupt and violent ends.
“When the Everything Bubble pops, the group variously known as FANG, FAANG, and FANGMAN will fall far and fast,” I write. “Amid the pre-shocks before the big one, they’ll fall far and fast.”
Well, today’s the worst day for stocks so far in 2019. The Dow and the S&P are off 2.5%, the Nasdaq 3.4%.
Facebook is down 3.5% today, and it’s off by 7% since May 1. For Apple, it’s 5.9% and 14%, Amazon 3.4% and 6.4%, Netflix 4.3% and 11.1%, Google 2.9% and 6.1%, and Microsoft 2.9% and 5.7%.
The proximate cause of this selloff is, of course, the Donald’s Trade War. You can also include the Fiscal Debauch among the debilitating baggage he’s piled atop America’s deeply impaired economy.
Indeed, the Tweeter-in-Chief is betraying Flyover America.
But it’s his mindless bashing of the Federal Reserve that guarantees a repeat of the 2008 stock market meltdown and subsequent C-suite fostered recession.
By shutting down the Fed’s belated normalization campaign and bullying our monetary central planners into the humiliating, pusillanimous Powell Pivot, he removed the last feeble barrier against a blow-off top…
Now, there’s not much to stop the new emerging trend from accelerating.
It’s hard to imagine how our monetary central planners could have done anything more to crush those very ingredients — two-way trade, risk premia, meaningful carry-trade costs, short-seller skepticism – that keep financial markets disciplined, balanced, and sustainable.
The Fed was already way too late in its attempts to get interest rates off the zero bound and to shrink its bloated balance sheet.
By capitulating when they did, they brought the runaway freight train back into the market in the most destructive manner possible. It ignited one more mindless rush into the six momo stocks still standing. And it caused a sudden eruption of the broader indexes, dragging along exchange-traded funds, mutual funds, and the surviving phalanx of Jim Cramer home-gamers with them.
Ironically, though, abandoning “normalization” may indeed have set the stage for the climax of the Everything Bubble.
You’ll Hear It Here First…
Desperate times call for… “common sense” measures.
And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.
We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.
I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”
All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…
To common sense,