Blain's Morning Porridge - Surprising Upside but further pain to come? And Scotland... again...
Blain’s Morning Porridge – March 28th 2017
“Come, you spirits that tend on mortal thoughts, unsex me here, and fill me from the crown to the toe top-full of direst cruelty!”
So much for my dire predictions of imminent market collapse y’day following Trump’s Healthcare embarrassment in the US. Rather than dump, the US stock market saw a rash of bottom feeders step in to buy the dip. Suddenly its risk on again… Let joy be unconfined as stocks rally higher and the bond markets reopen for absolutely any kind of issuer…
That’s markets for you… Perverse, surprising and mendacious…
I was on Canadian TV yesterday morning (Toronto time) confidently predicting a tough day for stocks. I did say there might be buyers lower down – but expected a more significant correction. How embarrassingly wrong was I?
To be fair, the Canadians weren’t particularly interested in what I said. They are far more interested in market possibilities that will follow legalising marijuana next year – apparently a nacent futures market is already developing. There was also discussion about whether distribution will go through government booze shops rather than the private sector.
Back on planet earth..
My colleague Steve Previs was watching the US market y’day and thought the performance was impressive… but corrective (meaning less than solid). While sentiment indicators are all wildly positive, the technical charts are all negative on sell! That said, he reckons the market could be headed to new short-term highs.
But Steve is a bear. He says yesterday demonstrated two things: 1) the complete absence of fear: traders and investors jumped into buy the dips at any price. 2) the psychology of the market is setting up for a bigger fall. The key word is complacency.
Remember Blain’s Mantra No 1: “The Market’s only objective is to inflict the maximum amount of pain on the maximum amount of people.”
Later this year Steve expects the Big Global Reset. That’s the moment the current complacency and arrogance will catch up with us. The market will crash in a mean reversal moment. One area to watch will be the current market trend towards index funds and ETFs – which have massively outperformed during this phase of the 8-yrear stock bull market.
Now I happen to be a big believer in the ETFs, but I know most of my contemporaries from the Fixed Income markets remain highly sceptical, fearing chronic illiquidity in times of stress. Steve reminds me there were 12 entry gates onto the NYSE trading floor, but only one exit. What is going to happen if the near $250 billion of cash that’s been switched into US Stock EFTs from managed funds over the past year suddenly looks for a way out… (Sound of crashing minor chords….)
Meanwhile.. Scotland is shaping up for an interesting session. Wee Nicola will try to inflame Scottish Passions by holding a vote in the Scottish Parliament calling for another referendum. She will win it knowing Westminster will ignore the vote and deny a further plebicite. Lead on McDuff indeed…
Her intention is that the Scots will be mightily offended Theresa May has said No! How dare an Englishwoman deny the democratic destiny of the Scots – or other such nationalist BS will be the call of the day. Nicola is hoping anger will support her clear (as mud) mandate for the Scot Nationalists to tell the Scottish People what they should be thinking.
For most people (not me!) Scotland may be a small insignificant cold bit up North, but it’s going to be critical over the next few years as Europe and the UK dance around each other over the Brexit negotiations. If the UK looks disunitied, Brussels will exploit it!
The smart move for Scotland would be to wait and see. Not to muddy the waters. But that’s not the way we Scots do things…
Out of time.. and back to the day job.
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Bill Blain