As stocks fall, remember Wall Street’s biggest lie – I would buy more if it gets cheaper
With that as an opening line, we could take today’s T-Report in a lot of different directions. We could discuss how there is apparently no inflation to worry about. We could examine any sentence that starts with “I wanted your bonus to be bigger, but [insert excuse here]”. We could discuss tried and true sayings like “the check is in the mail”, but we are going to head down a different path, and one that is highly relevant right now.
This sentence applies to any asset that say went from $80 to $90 to $100 where the person involved failed to buy it. It is usually made as an utterance to oneself or to some equally chagrined colleague, that promises to buy if the price comes back down. Heck, buy is often replaced with “buy with both hands”, “back the truck up”, etc. It leaves people with the perception that there is a lot of support on any pullback. It isn’t even a lie, at the time.
But what the person (and I’ve done this myself multiple times) really means is:
If nothing changes in my portfolio AND the price drops for no good reason, I would buy.
We tend to leave out those two conditions, or qualifications, but they are crucial.
· For no good reason. Stocks and other assets, in my experience, don’t sell-off 10% without some reason. Today that reason might be higher yields, or inflation, or something else. The point is that when the statement was made that “you would buy if the price drops”, it dismisses that there would be a potentially legitimate reason for that drop. That reason makes people hesitate.
· If nothing changes in my portfolio. When the statement was made, it was before you bought some high beta proxy for whatever asset you missed in an attempt to catch up, or some other potential strategy that now puts you in a more precarious position where buying this name is difficult. The more you have monthly, weekly, or daily P&L scrutiny, the harder it is to buy, unless you were short coming in (which, while not the opposite of saying you want to buy more, is close to that).
The idea that there is a lot of support on pullbacks, tends to get tested, partly because those who said that they would buy (and they did mean it at the time), are not in a position to buy.
In Noah’s Arkk we mentioned 40 days and 40 nights, so basically, I don’t think that the selling is over, but maybe we are ¾ of the way through it? We described the dynamics of what is going on, by highlighting a similar (at least in my mind) set of circumstances in the commodity equity space back in 2008 (Beverly Hillbillies). I also got to talk about this and some serious questions about the corporate bond market on Bloomberg TV on Tuesday (starts at the 50 minute, 30 second mark).
Today we may see another attempt at a rebound. There is a chart (or table) being actively circulated today showing a bunch of the fan favorite stocks and how far they are below their 52-week highs. Based on the comments and the intensity of the circulation, it leads me to believe that we will see some people dip their toes in (again) which could offer some support. Mondays, in general, have been good days for stocks (I attribute much of that to the start of the weekly call buying season). That game of weekly call buying is getting old, as this is set to be the 3rd week in a row where we close lower on Friday than where we started the week on the Nasdaq 100 NDAQ +4.9%.
Having said that, I would look to fade any bounce across most assets.
Nasdaq 100, Bitcoin and Arkk
While this chart is simplistic, ARKK and the Nasdaq 100 (QQQ) have taken out their start of the year levels. My target is something much closer to their post-election levels. For bitcoin (GBTC), my first target is year-end levels which takes us down to $30,000. Yes, I know every person on the planet and half of the companies in the world are looking at bitcoin, but I think (more so than in any other asset class), the “I’d buy if it goes lower” narrative is questionable.
I focus on global macro and current market drivers, with an emphasis on the fixed income markets. I have 20 years of experience as a trader, structurer, and strategist