Ahead Of Market Avalanches!
Ahead Of Market Avalanches!
I am sure that like me, the reader of this column was inundated between the beginning of November and the end of December by letters and economic outlooks from all variety of financial pundits.
Let me be the first one to offer my condolences, since it is highly likely that none of those pundits called for the massive bull market in equities and bonds, and indeed for all assets at the end of December 2018, when the markets were in panic mode.
The rhetoric is a lot less bearish today, and in some cases even bullish. With the “Longest, Calmest Bull Market Ever” being celebrated (Bloomberg Business Week Dec. 23, 2019), the skies look clear, the weather ahead looks friendly, and the risks of last year have all but faded from memory.
We all know the Fed pivoted from tightening to easing in the face of an imminent stock market meltdown, the ECB went deeper into negative rate territory, and despite a presidential impeachment in the U.S. and chaos on the trade front, the equity markets kept climbing even as buybacks from corporations continued at record pace.
Every time a melt-down seemed imminent, Central Banks pre-emptively pumped in more money into the system, which resulted in “melt-ups” and required “right-tail” hedging rather than the more popular “left-tail” hedging.
The melt-ups in the stock indices trounced almost all active managers, and not surprisingly, retail investors were largely left licking their (relative) wounds in cash and bonds, with an incredible amount of ammunition left now to buy stocks.
The “wedge”, according to Goldman Sachs research between flows into bonds and money market funds, and money out of equities, grew to a record of over $1.2 trillion in 2019 (GS Tactical Flows Daily Report).
There are indeed now calls for retail investors to fall back in love with stocks this year as the bull market continues to defy the expectations of most experts.
