IS THE NARRATIVE ABOUT TO CHANGE?

Many times I have commented about the imbalances of today’s markets, a viewed now shared by many including several regulatory agencies including the SEC. This view has not yet made into the mainstream but I ask is this about to change.

Before yesterday’s market opening I read five wire stories from the top tier financial news organizations. One was titled “It is Only Monday Morning and I am Already Exhausted.” The premise of the story is the inability to look through short term developments believing such is only noise and focus on value. The article talked about how five words can have a massive impact on prices which has greatly distorted longer term values.

Another story was “Today Weirder than the 2008 Crisis.” The article validated my view 2008 was/is easy to explain. It made sense. Today does not make sense as there are 4 cycles in 12 weeks. Historically there was one cycle in 24 months.

Yet another discussed the distinct possibility that today is indeed different, stating that negative interest rates are here to stay, value investing is dead, FAANG will rule the equity markets forever, and the complete death of traditional socioeconomic/geopolitical analysis. Technology based passive/momentum investing is the one and only strategy.

As noted many times the trading mechanics have radically changed. Simplistically speaking the “buy side” is now the primary vehicle for market liquidity. Under times of stress, it is not known whether or not this avenue will disappear under the simple guise that “fear is more powerful than greed.” There are numerous examples that such has already occurred on a small scale.

Are the regulatory entities attempting to resolve this potential issue before a full blown liquidity crisis occurs via the changing of the Volker Rule?

Personally I am exhausted given today’s “nothing makes sense” environment. There is an old market axiom the markets can stay irrational longer than one can stay solvent. It is not a question as to if change will occur but rather when, the catalyst of such will not be known perhaps until months after it has occurred.

What will happen today? Will there be another five word tweet that moves the markets 1%? Bloomberg writes yesterday was the tenth day in August that the S & P 500 has closed above or below the 1% threshold during August. Yesterday stocks were up about 1% on a tweet.

Last night the foreign markets were mixed. London was down 0.08%, Paris up 0.30% and Frankfurt up 0.49%. China was up 1.35%, Japan up 0.96% and Hang Sang down 0.06%.

The Dow should open quiet on the ever changing China narrative. The 10-year is up 4/32 to yield 1.51%.

 

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