Tuesday, January 21, 2020

Reach For Implosion

We are witnessing an epic reach for yield, at the end of the cycle. This can't come as more of a shock. Despite a decade fighting deflation, deflation is somehow STILL the least expected outcome. Trust in central banks is complete. This will be CATACLYSMIC...

You can't make this shit up:

Two years ago at Davos, hedge fund titan Ray Dalio said that anyone holding cash would feel stupid. Within days of that comment, the market crashed into Vixplosion 1.0, making Ray Dalio look stupid. Now, two years later amid identical FOMO and 10x risk, he says the exact same thing:

"The billionaire founder of the hedge fund Bridgewater Associates said...that investors should be buying this market, rather than seeking safety in cash"

A monthly fund-manager survey conducted by Bank of America found that managers were holding on to their lowest proportion of cash since 2013"

If the guy running the world's largest hedge fund can be this consistently clueless, what chance does today's home gamer have? None.

Dalio advises a global diversified portfolio. Unfortunately, central banks have driven global correlations across ALL risk asset classes to 100%. Therefore diversification will do NOTHING in this environment. The only safe haven IS cash - the one thing Dalio advises not holding. 

The Chinese Coronavirus is already pounding Emerging Markets:

For those who want more proof this is the end of the cycle, here we see the BDI continuing its 2008 magnitude crash:

Palladium is going late cycle parabolic. This is the metal used in cars for catalytic converters, to lower exhaust emissions:

Small caps are still not confirming this rally:

The two most shorted stocks in the market are Tesla and Apple:

What the article gets wrong is that (over) valuation based upon price/sales ratio and market cap / GDP, is higher today than it was two years ago. Also, sentiment is even more extreme today (see below).

But the REAL difference from two years ago, is that Tech concentration is far higher today than it was two years ago, solely due to earnings multiple expansion:

"Nowhere is this more evident than with Apple, a stock that’s doubled in the past year with virtually no observable change in its financial performance."

In summary, those STILL trusting proven morons are going to feel pretty stupid

"As founder of the world's largest hedge fund, what I advise is everyone hold less cash"

By the way, Dalio's fund, Bridgewater, are BIG gold lovers. 

So plan accordingly, as Wall Street ignores the most deflationary environment in WORLD history:

Inflation is a consensus trade on Wall Street. Gold net speculative (long) is at record highs (lower pane):

By way of comparison to Y2K, here is another hedge fund fool smoking crack. Back in 1999 the U.S. was running a budget surplus not a trillion dollar deficit. The Fed balance sheet was unchanged. AND the Fed Funds rate was 6.5% versus 1.5%. The only thing that's the same is the Tech bubble.

The only thing legendary about today's mega investors is their decade of monetary bailouts.

Here comes (asset) deflation on a scale no one has ever imagined before. The exact opposite of what EVERYONE expects...