Brother, can you spare a dime?
February 6, 2018

Mint - Blain's Morning Porridge

Once I built a railroad, now it's done. Brother, can you spare a dime?

The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research.

An 8 percent-13 percent decline in stocks (depending where you look) focuses the mind wonderfully. Yesterday's "Off-Grey Monday" has spawned a rash of fractious headlines: "Stocks crumble in vicious sell-off as "goldilocks" trade unravels". "US Stocks stuffer worst fall in six years", "Stock Markets Plunge – Worst Day in Asia", "Traders Panic as Global Rally Hits Wall.." "Market Rout Shatters Lull in Volatility", "FTSE ate my Hamster". Etc, etc..

We've been here before. And it's either not so bad, or it might get worse. A shakeout had been feeling inevitable. Now we're looking for the bounce. When?

I suspect/hope we will look back to the last few days and it will look like a dog vigorously shaking off some troublesome reality fleas. So say farewell to the stupid froth over cryptocurrency babble, the absolute nonsense being spun around the stocks can't fall myth, understand market psychology is easily spooked, and shake the belief in the "new, new things" with zero basis in reality.

A dose of reality isn't bad for markets. There is real new stuff – including SpaceX launching their new big boy rocket later today – and there is utter tosh - like busted companies jumping 100 percent because they say they are looking at blockchain applications. Clear it all out and focus on the real stuff moving, real headlines, and consequences.

The last seven days just made January the month that never happened – but look at all the charts, and we're still massively up on this time last year. Even the volatility spike isn't a killer on a monthly basis. I'm still wondering if this is yet a buy opportunity or are we now into a new range for stocks? Initial take for the charts this morning was market is likely to bounce, but test the lows again in the mid-term. I suspect this isn't over yet.

There are lots of things to consider in terms of where sentiment goes next:

o   Who has this mini-crash shaken out? We know it's going to chase out the day traders, the "last fools" who just joined, and dim the speculative money that was chasing the market higher. The froth will have blown away and complacency reversed into scepticism.

o   What triggered it? Doesn't really matter – it's happened and issues like inflation and bond yields, volatility and leverage, will factor in when it bottoms.

o   How significant will the vast sums that have been invested in tracker exchange-traded funds prove? Are we likely to see panicked redemptions – and will these destabilize markets?

o   How much damage will the shake out of leveraged players do?

o   What about the volatility spike – some great stories about the inverse volatility VIX ETF – XIV, taking a spanking as the sell vol trade collapsed?  However, increased vol across bonds, stocks, oil and foreign is bound to hit trading – we're in risk-off mode.

o   Central banks? I think/hope they have learned, but central banks were once very skilled at making minor market wobbles into major market disasters through unwise policy calls.

o   How foolish does Trump look – that's an unfair swipe, but just last week he was telling his new Davos besties what a great job he was doing because stock markets were rising. Doh!

o   However, the really important one is - with many of the sellers now out, what are they going to do with their money?

And therein lies the next phase. There is an enormous amount of cash queued up to invest. Not just repatriated US overseas earnings, but all the usual money spigots. Where is it going to go? It has to be invested somewhere. 

Bonds are an unlikely beneficiary of the current stock wobbles. We're past the end of the bond rally, and rates – even in Japan and Europe – are rising. Although the US ten-yr is back in 2.75 percent territory it will be testing 3 percent soon enough. More interesting will be the effects on high-yield bonds – where a short sharp dose of reality is bound to hurt, and spread decompression across financials and investment grade. And sell financials? Usually a good idea when markets are crashing…

A number of folk are looking at emerging markets (EM), where the specialists are already arguing markets are disconnecting from the US, and are therefore worth a look. In a rising rate market, with growing inflationary signals, commodities are another area to consider – again benefiting EM.  Personally? I wouldn't have a clue what to do with a bulk carrier load of "stuff", but fortunately, we know people who do.

Just like everyone else we'll be watching what happens, and may follow up with a further comment.

Eyes to the screens..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

Once I built a railroad, now it's done. Brother, can you spare a dime?

The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research.

An 8 percent-13 percent decline in stocks (depending where you look) focuses the mind wonderfully. Yesterday's "Off-Grey Monday" has spawned a rash of fractious headlines: "Stocks crumble in vicious sell-off as "goldilocks" trade unravels". "US Stocks stuffer worst fall in six years", "Stock Markets Plunge – Worst Day in Asia", "Traders Panic as Global Rally Hits Wall.." "Market Rout Shatters Lull in Volatility", "FTSE ate my Hamster". Etc, etc..

We've been here before. And it's either not so bad, or it might get worse. A shakeout had been feeling inevitable. Now we're looking for the bounce. When?

I suspect/hope we will look back to the last few days and it will look like a dog vigorously shaking off some troublesome reality fleas. So say farewell to the stupid froth over cryptocurrency babble, the absolute nonsense being spun around the stocks can't fall myth, understand market psychology is easily spooked, and shake the belief in the "new, new things" with zero basis in reality.

A dose of reality isn't bad for markets. There is real new stuff – including SpaceX launching their new big boy rocket later today – and there is utter tosh - like busted companies jumping 100 percent because they say they are looking at blockchain applications. Clear it all out and focus on the real stuff moving, real headlines, and consequences.

The last seven days just made January the month that never happened – but look at all the charts, and we're still massively up on this time last year. Even the volatility spike isn't a killer on a monthly basis. I'm still wondering if this is yet a buy opportunity or are we now into a new range for stocks? Initial take for the charts this morning was market is likely to bounce, but test the lows again in the mid-term. I suspect this isn't over yet.

There are lots of things to consider in terms of where sentiment goes next:

o   Who has this mini-crash shaken out? We know it's going to chase out the day traders, the "last fools" who just joined, and dim the speculative money that was chasing the market higher. The froth will have blown away and complacency reversed into scepticism.

o   What triggered it? Doesn't really matter – it's happened and issues like inflation and bond yields, volatility and leverage, will factor in when it bottoms.

o   How significant will the vast sums that have been invested in tracker exchange-traded funds prove? Are we likely to see panicked redemptions – and will these destabilize markets?

o   How much damage will the shake out of leveraged players do?

o   What about the volatility spike – some great stories about the inverse volatility VIX ETF – XIV, taking a spanking as the sell vol trade collapsed?  However, increased vol across bonds, stocks, oil and foreign is bound to hit trading – we're in risk-off mode.

o   Central banks? I think/hope they have learned, but central banks were once very skilled at making minor market wobbles into major market disasters through unwise policy calls.

o   How foolish does Trump look – that's an unfair swipe, but just last week he was telling his new Davos besties what a great job he was doing because stock markets were rising. Doh!

o   However, the really important one is - with many of the sellers now out, what are they going to do with their money?

And therein lies the next phase. There is an enormous amount of cash queued up to invest. Not just repatriated US overseas earnings, but all the usual money spigots. Where is it going to go? It has to be invested somewhere. 

Bonds are an unlikely beneficiary of the current stock wobbles. We're past the end of the bond rally, and rates – even in Japan and Europe – are rising. Although the US ten-yr is back in 2.75 percent territory it will be testing 3 percent soon enough. More interesting will be the effects on high-yield bonds – where a short sharp dose of reality is bound to hurt, and spread decompression across financials and investment grade. And sell financials? Usually a good idea when markets are crashing…

A number of folk are looking at emerging markets (EM), where the specialists are already arguing markets are disconnecting from the US, and are therefore worth a look. In a rising rate market, with growing inflationary signals, commodities are another area to consider – again benefiting EM.  Personally? I wouldn't have a clue what to do with a bulk carrier load of "stuff", but fortunately, we know people who do.

Just like everyone else we'll be watching what happens, and may follow up with a further comment.

Eyes to the screens..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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