No One Knows What’s Going On Anymore

When you become so wedded to a market narrative that it becomes gospel, you are probably about to make a financial misstep.

I’ve been a skeptic for years about the sustainability of what are increasingly artificial markets. Markets that rely for their viability, on a bid for equities that comes from somewhere no one really understands - the BoJ, Citadel, somewhere.

You should think about this when you trade. But on a day-to-day basis, it’s not going to matter that much. Especially if you’re as skilled as the people who you’ll learn from this site. You make a great options trade, you net 150%. Boom. Who cares what Yellen says?

But you know when it will matter? On the August 24s, 2015. That’s when it will matter. The circuit breakers will trip, the primary dealers will see it before anyone else, the ETF sponsors won’t have any answers. And what was worth, say $50 a unit on Friday at 3:59, can be worth 50 cents on Monday morning. And I don’t mean the options. I mean the actual ETF units.

I always try to ask myself this: “Ok, what’s the point?” Why should anyone care? Is this a rant or is there value here?”

So to answer that, consider this headline out from BofAML (this is a note out literally hours ago): “The Peter Pan Economy: Cycle Not Acting Its Age As Central Banks Create Fantasy-Land.” Here are some quotes:

“...at the same time, we fully recognize and appreciate that low global yields and the need to stay invested creates a positive technical that is difficult to fight against.

“But fight we do. Days like last Friday admittedly challenge our conviction, though. Oil down nearly 1%, and a payroll report that suggests our fears of a tightening labor market coupled with poor productivity, slowly rising wages and lackluster corporate earnings will lead to job losses later this year or early next year seem more than justified; and yet yields on our US HY index fell 3bps. Perhaps the market has for now decided to overlook the following alarming statistic- during the heat of the early year selloff there were 21 important indicators. Of those 21 indicators, 16 of them are the same or worse today. Interestingly, 3 of the indicators that are better today are related to the manufacturing sector (Factory Orders, Durable Goods and ISM Manufacturing). Personal Spending is also modestly improved (though Personal Consumption is worse) and New Home Sales is modestly improved (Existing Home Sales is much worse). With manufacturing still struggling, despite slightly better data, and a weaker consumer, we would argue that the macro landscape is as bad or worse than when investors were forecasting imminent recession (we were not in that camp).”

If you can tell me what it is they are talking about there I’m all ears. Specifically this…

“...Oil down nearly 1%, and a payroll report that suggests our fears of a tightening labor market coupled with poor productivity, slowly rising wages and lackluster corporate earnings will lead to job losses later this year or early next year seem more than justified; and yet yields on our US HY index fell 3bps…”

It’s just 54 words of nonsense. It doesn’t mean they’re not intelligent. But it’s just meaningless. So there will be “job losses later this year or early next year [that] seem more than justified” and then somehow there’s a read through for a 3bps (that’s 3 basis points) tightening in HY credit?

I’m not sure how anyone gets paid for that. Sorry.

I want to provide commentary that helps people trade. That helps people make money.

I’m not sure the bulge brackets really do care out that. Need proof? Tell me what the hell this BofAML quote means?
“...we continue to believe that the linkage between corporate earnings, Capex, credit conditions and labor productivity is not fully appreciated and will take many by surprise when companies begin to lay off more than they hire to save costs and try and expand equity multiples and the bottom line and we have likened this business and credit cycle to that of the late 1990s, and after Friday’s data we find yet another intriguing similarity- the pace of job growth has accelerated and decelerated nearly in concert with that period of time.”

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