Back Stories 8/31/20
August 31, 2020
August 31, 2020
Stupid is Knowing the truth, seeing the truth, but still believing the lies. Everyone knows the MARKETS is a bubble. Yet, the market is never wrong when it comes to your P&L
Here is what I see
“It’s All One Big Trade”
“According to BofA’s Jared Woodard, the crowded trades – growth vs. value, large vs. small, US vs. EAFE, market cap vs. equal-weight, USD vs. EM FX, Treasury bonds – stay crowded because there is no alternative in a world of shrinking returns on capital.”
“…Meanwhile, the Fed keeps injecting more and more liquidity even as growth is scarcer and scarcer. As a result of this maximum liquidity in a world of scarce growth. the Fed has created an ever-larger series of asset bubbles.”
“…And when real interest rates are negative as they are now, there is every incentive to chase low-probability, high-impact upside according to Woodard. In short, any vehicle with a chance at large returns becomes a cheap call option.”
Just two examples: in 2020 investors are once again pouring cash into “blank check” IPOs or Special Purpose Acquisition Companies, just as they did in the summer of 2007. As we first discussed several weeks ago, SPACs have no operations but simply raise funds for undetermined future acquisitions. At the same time, one bitcoin costs more than $11,000. That’s more than the average US household makes in two months.
“…today a record 79% of the S&P 500 offers dividends greater than the 10-year Treasury yield.”
Contrary Thinker sees their conclusion as being the problem with the “got to be in it to win it” point of view:
“In summary, “stagnant GDP, deepening inequality, and the threat of policy failure make us bullish on the things we don’t want to buy (growth, large caps, US) and bearish on the things we want to own (value, small caps, EAFE) because, without an economic transformation, any reversal in the ranks of market winners & losers can only last a season.”
Going into 2018 along with geopolitical risk Contrary Thinker envisioned a major constitutional risk. Here are a headline and content from my January 18, 2018 letter. It also fits into the 45-year cycle publicized in a recent MarketMap. But it is gaining more traction from the press today.
The Constitutional Crisis of Trump Undermining the Election
Those of us who blogged right through to the end of George W. Bush’s presidency had already heard enough from John Yoo, thank you, before he decided to become a volunteer legal defender of President Trump. If you aren’t familiar with Yoo, his Wikipedia page is accurate and gets straight to the point.
Yoo is upset that some conservative intellectuals have been harshly critical of Trump’s suggestion that perhaps the presidential election should be delayed:
Donald Trump’s tweet last week that the possibility of mail-in voter fraud might justify postponing the November elections renewed claims that his presidency is a threat to the Constitution. Conservative commentator Henry Olsen, often a stout defender of the administration, wrote in his Washington Post column that the tweet “is the single most anti-democratic statement any sitting president has ever made.” Steven Calabresi, a conservative Northwestern law professor and co-founder of the Federalist Society, declared in the New York Times that “this latest tweet is fascistic and is itself grounds for the president’s immediate impeachment again.”
But Yoo assures us that threatening to do something unconstitutional is not problematic if you lack the constitutional power to justify the threat. This is like saying that robbing a bank is not possible because robbing banks is against the law. The Constitution is there to deter and punish, but it cannot prevent unconstitutional acts.
We know from the Roman example (of which the Founding Fathers were acutely aware) that ordinary venality can be as dangerous to a republic as grandiose political ambition; and, as it turns out, in our own case that kind of thing is sufficiently destructive without our having to imagine Trump as an aspiring Caesar. This isn’t an opera, and it does not have to be operatic.”
The above is only the tip of the iceberg, it will become worse are the election day gets closer.
Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
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