Trump and his stable of useful idiots are now trying to blame Bernie Sanders for this week's selloff.
Global trade wars, China collapse, fracking deluge, Tech super bubble, record liquidity stimulus, mega deficit, repo crash, record low interest rates, record junk stock speculation, IPO pump and dump, record over-valuation, slowing growth, declining stock buybacks, no safety net.
"It was all going so well"
Most of today's pundits are focusing on stocks while ignoring the bigger picture. All of the above asset classes/trades are in various stages of RISK OFF.
The locus of risk of course are the extremely crowded Growth/Momentum stocks which have a date with destiny in the form of margin calls.
When the growth trade explodes, ETF stop losses will perform their magic of disconnecting the underlying stocks from the ETFs holding them. This is what happened in the 2015 smash crash, and the ETF migration has only increased substantially since that time. Mutual funds don't have stop losses because they don't trade on exchanges.
Add in the fact that this is the most concentrated market since Y2K, and it's not hard to imagine how things get out of control.
Today (Wednesday) yet again, small caps are down while the largest cap Tech stocks are up. As more and more money rotates to fewer stocks.
So, super smash crash will kick things off, which will be followed very likely by super volatility explosion. Two events that are now highly inter-linked via big cap Tech.
"Two decades after it first peaked as the dominant leader of a dazzling bull market, Microsoft is once again Wall Street’s indispensable stock."
In the past 12 months, Microsoft has added $600 billion in market capitalization — equivalent to the company’s peak value in high-tech heyday of the late 1990s."
In other words, Microsoft is the most over-owned since Y2K. And in the past 12 months it gained a Y2K in value.
Really, what could go wrong?
This just in after hours Wednesday:
Super casino implosion. All good.
But what does that have to do with the actual economy?
It has to do with the fact that the record reach for yield caused by record low global interest rates has sent global money piling into the riskiest junk bonds they can find.
"Fears over the impact of the coronavirus outbreak sparked a sharp sell-off in junk bonds on Monday, pushing borrowing costs for the riskiest energy companies to their highest level in more than three years"
“It’s one of the worst trading days we have seen in recent memory...It’s a sanity check for investors. We had the melt-up in December and people have been ignoring the tell-tale warning signs this year.”
Add in leveraged loans
And EM currencies
In summary, there is a lot more at stake than some margined out Tesla gamblers hiding in the riskiest stock.
Especially given the fact that there is no stimulus safety net beneath the super bubble
"I've seen this before, I can't remember when"
