The Wild Ride of the Giant 5 Stocks (APPL, MSFT, AMZN, GOOG, FB) v. the Rest of the Market

Suddenly, a whiff of “Don’t fight the Fed?”

By Wolf Richter for WOLF STREET.

Over the last two trading days, Thursday and Friday, the Giant 5 stocks combined fell by 7.4% in value. The Nasdaq dropped 6.2% over those two days. For Apple, the most giant of them all, the selloff started on Wednesday:

  • Apple [AAPL]: -7.9% in 2 days; in 3 days: -9.9%, or -$226 billion.
  • Alphabet [GOOG]: -7.9%
  • Amazon [AMZN]: -6.7%
  • Facebook [FB]: -6.5%
  • Microsoft [MSFT]: -7.5%

The Giant 5 market capitalization had hit a new mind-boggling record of $7.81 trillion on Wednesday – despite Apple’s drop – having skyrocketed from their crisis-low ($4.1 trillion, on March 11) by 91%, or by $3.72 trillion, just these five stocks. Seen in this light, and in the light of their 271% rocket-ride since January 2017, this two-day drop, which wiped out $578 billion in market capitalization and was the steepest two-day drop since March 9 (-12.9%), is really just a small squiggle (market cap data via YCharts):

The two-day drop just put them back where they’d been for the first time on August 24. In other words, there had been a blistering rally all summer that had followed a blistering rally that had started in March, and then in two days, only the last eight trading days of that mega-rally were unwound.

So it wasn’t exactly a cataclysmic event, but a minor selloff in a market that had gone completely nuts during the worst economic crisis in a lifetime.

Alibaba [BABA] doesn’t make the list because it’s not a proper common stock; it’s an ADR, issued by a mailbox company in the Cayman Islands that has a contract with an entity of Alibaba in China. Holders of BABA have ownership of a mailbox company in the Cayman Islands.

And all the other stocks without the Giant 5?

The total market, as tracked by the Wilshire 5000, which includes all 3,415 or so stocks listed in the US, fell 4.1% over those two trading days. But my “Wilshire 5000 Minus Giant 5 Index” — meaning all stocks without the Giant 5 — fell only 3.3%, while the Giant 5 fell 7.4%.

They were laggards on the way up, and they’re laggards on the way down, but even they had skyrocketed 60% from the crisis-low and 37% since January 2017 despite two huge sell-offs in between (Wilshire 5000 data via YCharts):

Giant 5 and all other stocks since February, in percentages.

The chart below shows the percentage changes since February 19: The “Giant 5 Index” (red) had dropped a relatively small -20% during the crisis, while the rest of the stocks combined (green) had plunged 40%. Despite the selloff over the past two days, the Giant 5 are still up 40% from February 19; while the rest of the stocks are down 5.9%:

The weight of the Giant 5 in the total stock market peaked at 21.5% on September 1, in terms of market capitalization. At the close on Friday, it was down to 20.7%. Just five companies account for over one-fifth of the value of all stocks and ADRs traded in the US.

And to round out the tech-focused FANGMANTIS stocks, that in addition to the Giant 5 also include:

  • Tesla [TSLA]: -25% in four trading days through Friday after-hours when S&P Dow Jones Indices announced that Tesla has not been added to the S&P 500 Index.
  • Netflix [NFLX]: -7.3% over the last three trading days.
  • Nvidia [NVDA]: -12% over the last two trading days.
  • Salesforce.com [CRM]: -9.8% over the last two trading days.

This selloff comes after August that had been the best August for the S&P 500 Index since 1986, which had come after a red-hot July, in an overall blistering rally during the worst economic crisis and the worst unemployment crisis – 29 million people are still claiming unemployment insurance – in a lifetime.

Suddenly, a whiff of “Don’t fight the Fed?”

The blistering rally was ludicrous from a fundamental point of view – a total disconnect from the economy, corporate revenues, and corporate earnings.  It might have made sense from a Fed-QE point of view, as the Fed was throwing $3 trillion at the markets, but the Fed has stopped doing that. Its balance sheet peaked on June 10 and has since then declined by $151 billion.

And the Treasury securities the Fed is still buying are just monetizing a small part of the huge amount in new Treasury debt that the government issues, the proceeds of which are distributed as stimulus, unemployment, and bailout monies to consumers, businesses, and municipalities, and much of this money is spent, rather than handed to Wall Street. Could it be that there’s suddenly, a whiff of “Don’t fight the Fed?”

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  171 comments for “The Wild Ride of the Giant 5 Stocks (APPL, MSFT, AMZN, GOOG, FB) v. the Rest of the Market

  1. 2banana says:

    Holy FANGMANTIS Batman!

    • Wolf Richter says:

      I purloined this from commenter “Duane” here :-]

      There is nothing like WOLF STREET commenters for inspiration!

    • Mark says:

      The US treasury has been front running all this. Buying calls en masse and the underlying assets, blaming hoodies and japs. Anything to win the election. Jobs figures clearly a fraud too – who signs them off? They will lose control.

      • Old School says:

        I was trying to do research on the Fed’s new inflation target. I call BS. Annualized inflation has been substantially above 2% during the last 50 year period. Even during the last 20 years its averaged 2.15%. Now for a few years it’s been slightly under 2%. So for the Fed to say they are going to average 2% trailing inflation without giving a definite time period is BS.

        Plus from a Federal Reserve paper itself it states high inflation is caused by central bank’s excessive printing to finance a countries deficit.

        The other thing the paper says is stable inflation whether it’s 1/2%, 2% or 3.5% is the most important thing as you have a means of doing a calculation. When you have price volatility you just can’t make a good decision.

        • cb says:

          True inflation, the expanding money supply, has been well above 2.15%. Rising prices, which should be called just that, Rising prices, has also been well above 2.15%. Asset prices, real estate prices, rents, medical care, insurance, college tuition, etc.

          We should stop referencing the CPI, which is just outrageous Propaganda,

        • Bead says:

          You forgot to apply the hedonic adjustments. A wide screen TV in every pot. Ubiquitous air conditioning. Impending free college tuition.

        • No Expert says:

          Money supply doesn’t explain inflation. For a start even if you accept Friedmans MV=PT, you have to ignore V and T (velocity and number of Transactions). In a recession V&T both slow and counteract the effect of increasing M.

        • cb says:

          No Expert said: “Money supply doesn’t explain inflation”
          _______________________________

          If you mean Money supply doesn’t explain prices – – – perhaps by itself it doesn’t, but it’s a contributor.

          If the money supply expands, that by definition is inflation.

    • Frengineer says:

      What’s the origin of the moniker?

    • Trinacria says:

      would it be “FANGMANTITIS” …which sounds more like the disease that it is???

  2. Yancey Ward says:

    Wolf,

    Do you still have your S&P short in place?

    • Wolf Richter says:

      Yep.

      Now in the single-digit red :-]

      • Skara says:

        Me too, though I’m still 11% in the red. Oddly, I’m not worried.

        • Yancey Ward says:

          If there is follow-through on Tuesday, I may join you in the short.

        • Yancey Ward says:

          The thing that would worry me most is an announcement of a vaccine- I would personally sell the news that day. Shorting before that, though, is worrisome to me.

        • California Bob says:

          There have been dozens of vaccines “announced.” Trouble is, no one knows if they work, or turn you into giant cephalopods, or both.

        • Old School says:

          It seems a logical bet as market always tends to fall back to it’s discounted cash flow value of dividends which is below 1500 on SP500. Main risk is probably just holding on til bubble pops for good. Could be now or could be a long time from now. Hard to believe 666 on SP500 was only about 12 years ago.

          I will just sit it out in short term treasuries as you only have the pain of not making money while you wait. Temporarily losing money can scare you out of your position.

      • David H says:

        Hi Wolf – sounds crazy but have you considered selling Puts on the index? With the amount of money in the system and almost certain visibility that they are not going to take any out (look at how much sits in the TCB), I think there is money to be made selling OTM puts on SPY for like Jan and April when this all blows over. Premiums are very high and if you end up having to take ownership it’s at a much lower cost base

        • Yancey Ward says:

          I sold a ton of puts in early April that expired between June and November of this year- was good for a 20% return on my investment funds- I was able to close all the positions for pennies on the dollar by July given the rally from the bottom. I haven’t repeated this- I have been waiting for a sharp decline in the market, but haven’t gotten it yet.

        • Yancey Ward says:

          Also, the premiums on puts are only high on the most volatile of the stocks right now- stocks like Tesla, Nvidia, Netflix, etc. The premiums on the kinds of stocks I would like to actually own at a good price are really low right now.

  3. EJ says:

    Nvidia, who’s worth about 1/3 of a Google now, also got dragged *waay* down from their peak over the last few days. They’re like a part of the big 5 even though they’re technically #14.

    TSMC (the Big Supplier for Big Tech) is even bigger at #8, a solid 1/2 of a Facebook, and got dragged down too. Like Alibaba, they’re not a US stock, but they’re not listed as an ADR… so I don’t know what the deal with them is.

    • EJ says:

      *Oh I missed the mention of Nvidia.

      Still, their stock is crazy volatile. Not quite Tesla levels of crazy, but even if we assume they’ll run AMD and the flurry of AI startups out of business, their market cap doesn’t make much sense.

      • Petunia says:

        These two companies are the high end and the low end of tech, something like Target and Saks Fifth Avenue. Both will be around for a long time because they make products that work. One makes graphics cards in high demand for thousands of dollars and the other makes cheap chips you can recycle for decades.

  4. Dan says:

    What? No mention of Softbank fraud?

    I think most people are underestimating what is going to happen next week. With Softbank outed, now everyone knows that high valuation of FANGMAN an Tesla was all based on a technical fraud. On Tuesday, the smarter investors in these companies will be running for the exit.

    I think Softbank’s fraud has the potential to be the Lehman Brothers’ moment.

    • Dan says:

      Correction: I meant FANGMAN and Tesla

    • Wolf Richter says:

      Dan,

      Softbank’s bet was too small to move this HUGE market by trillions of dollars. But it contributed. It was one element. Lots of investors, hedge funds, and the like were doing what Softbank had done (if it had actually done it, because it’s just rumor at this point). The whole market had gone nuts and was on one side of the ship. Short positions had plunged to lows not seen in many years. Everyone was long and played the call options game.

      • Dan says:

        Thanks for the explanation; but I think $4B in options, given their leverage power, is huge. Also, I doubt FT puts itself in danger of law suite if they didn’t have enough evidence that Softabank is the whale who has been purchasing huge number of call options.

        Let’s see what happens when the markets open.

        • Wolf Richter says:

          The WSJ and the FT both pointed out that this is based on “sources” and has not been confirmed.

        • GotCollateral says:

          FT and WSJ just reposted what ZH said…

          But yeah, I wouldn’t call ~$4B in OTM FANG calls insignificant, because that would require dealers to buy like ~$400B in the underlying in order to write those calls… esp since

        • GotCollateral says:

          Man got cut off lol

          …esp since that FAANG paper is used as collateral and dealer acceptance of such is not decoupled to equity valuations… any repricing in equity will lead to repricing in collateral (and the leverage employed there) and repricing in trades that were taken against said collateral…

        • Wolf Richter says:

          GotCollateral,

          That’s why they are something like $400 trillion with a T in derivatives out there (notional value). That’s how call options work for everyone. $10 billion in call options by retail traders including Robinhood traders represent something like $125 billion in notional value of stocks. Softbank wasn’t alone in this. They all did it.

        • GotCollateral says:

          Wolf

          I’m not saying they were alone, but $400B in directional flow in cash just from dealers a select few tickers from just ONE entity is meaningful… esp in this market where volumes are dry and most investors are passive.

          Most of the derivatives outstanding are not in equity, but in IR products, and the notional don’t represent cash.

        • Rcohn says:

          You have to understand how “short or negative-gamma “positions work.
          Call buyers are sold calls by market makers or trading firms. These call sellers then in turn buy stock to hedge their call sales . Unless these call sellers want to be long or short, the amount of stock that they buy will be “delta neutral” based upon the delta of the call. But since the delta of the call is dynamic , the amount of stock bought will also vary as the stock moves.
          As an example , suppose a call seller sells 100 calls and the delta of these calls is .50. So to be “delta neutral”, the call seller buys 5000 shares. Now suppose the stock moves up enough so that the delta of these calls is .60.
          To be delta neutral , the call seller needs to buy another 1000 shares. So those firms(traders) who are short gamma need to buy stock as the market goes up and need to sell stock as the market goes down. Such firms exacerbate market movements both up and down.

        • cb says:

          @ Wolf –
          @ Rcohn-

          Rcohn said: Call buyers are sold calls by market makers or trading firms. These call sellers then in turn buy stock to hedge their call sales.
          ____________________________________________

          Are you certain of this? This sound like an inordinate risk and a great way to lose vast sums of money.

        • Wolf Richter says:

          cb,

          If those call sellers don’t buy the stocks as a hedge, they’re selling “naked calls.” Look up what that means. It’s a HUGE speculation and risk. You can get wiped out in no time, and more than wiped out. The naked call sellers face limited profits and unlimited losses that can go far beyond the original investment. Because they’re dealing with option contracts for 100 shares each, their losses are multiplied by 100, compared to shorting the stock outright.

          That’s why brokers don’t allow you to sell naked calls because you could lose your house selling naked Tesla calls.

        • Bead says:

          The call writers would have collected a boatload of premium. But I expect they were hitting the antacid.

        • cb says:

          @ Wolf –

          Am I wrong to contend that selling a call and then buying the stocks to hedge that call is placing you in a similar risk position as making selling a naked call? and at minimum, that it is a huge risk?

          I understand that owning the stock gives one the element of time and hope. But if the stock falls hard then your balance sheet has still been wiped out. If the stock price doesn’t recover, then your predicament is the same as having the naked call.

          I do know that current stock holders sell calls for an income play.

          Oh well, I am ignorant of the details of such matters. Thanks for the explanation.

        • Wolf Richter says:

          “Am I wrong to contend that selling a call and then buying the stocks to hedge that call is placing you in a similar risk position as making selling a naked call?”

          Yes, you’re wrong. You misunderstood what I wrote. Read it again.

        • cb says:

          @ Wolf –

          Sorry Wolf, but I don’t get it. Don’t worry to explain it just for me. I’m not at that level yet.

          Thanks.

        • MCH says:

          I didn’t think it was possible to sell naked calls. I suppose if you are large enough, they will let you do anything.

          The concept is so mind bogglingly bad it’s like playing Russian roulette with five bullets in the revolver while tossing hydrochloride acid into the wind. Either that or the person owns the company in question and knows it’s about to go bankrupt.

        • cb says:

          @ Wolf –
          @ Rcohn –

          Thanks Wolf. Got it.

          For those who shared my lack of perception:

          scenario 1: You sell a naked call. You must provide stock on a set date at a set price. If the price moves up 1000% from $1,000 to $1,000,000 per share, you are sunk.

          scenario 2: You sell a call, then buy the stock at $1,000. If the share moves up 1,000% to from $1,000 to $1,000,000 per share, you gain the premium with no losses. If the stocks move down, your max loss is $1,000 per share less the premium you received.

        • Cas127 says:

          Wolf,

          “If those call sellers don’t buy the stocks as a hedge…”

          I think this topic is worth a longer clarifier/explainer from you, since the risk faced by call sellers on “overvalued” stocks seems awful either way.

          Go naked when selling calls, and they face the risk you describe if underlying continues to increase.

          But…

          If call sellers cover by buying the underlying and current overvaluation ceases…they are will get nailed in a different way.

          Result…you would think pretty few call sellers on overvalued stocks…and therefore discouragingly high prices on calls.

          But this doesn’t seem to have happened.

          Who are these risk indifferent sellers picking up pennies in front of a steamroller?

      • MonkeyBusiness says:

        The Bank of Japan might have to bail out SoftBank this time around. Or most probably Softbank owes the former so much money they are the defactor owner of BoJ.

        Hard to keep these things straight soon enough.

        • Wolf Richter says:

          MonkeyBusiness,

          A Bank of Japan bailout would be an interesting move because Masayoshi Son, being of Korean descent, has been shafted by the Japanese establishment during much of his career, which perhaps explains his financial derring-do over the decades.

      • MCH says:

        Meaning… ideal time to go short?

      • sunny129 says:

        For those with enough ‘intestinal stamina’ consider swing trading between ETFs on FAANGs ( Not for the novice, please!)

        FNGU/FDN vs FNGD/WEBS – No need to remind that this speculative for one’s minor fraction of the portfolio -Highly volatile
        – GREED/FOMO vs the REALITY on the ground with Covid 19 spike ahead with increasing UE!

        Selling the puts was the most profitable since March ’09 and again since March 23rd ’20. But going forward I would be cautious! Premiums on puts are slowly increasing but also uncertainties for the next 2 months until election + 2 weeks!
        There is a ‘hard’ built-in mentality to buy the dips until there is a correction of significan decline! I look forward for profit on the REPEATED ‘rebound spike’ on calls!

        Swing trading options on DIA, SPY and QQQ is potentially profitable for the experienced, nimble option traders during volatility ahead.
        (Been in the mkt since ’82+option trading since 2003)

        • sunny129 says:

          -Selling PUT is akin to ‘willing’ to buy that stock at ‘infinite’ price-means at infinite LOSS!
          (unless tempered by buying puts – vary by premium paid and time frame – Remember $ decay+ Time decay)

          – Same with Selling ‘naked’ calls – infinite LOSS!
          – Selling covered ‘calls’ (the risk of LOSS) is limited to your investment in the stock. If right, pocket the premium and keep the stock!

          Get a clear idea about exactly what means and the consequence (profot/loss) re CALL vs PUT
          Buy to OPEN
          SELL to Close
          Sell to OPEN
          Buy to CLOSE

          AS a prof of Finance management told me ( during MBA) NOT many Brokers are even NOT proficient in BASIC option trading!
          Be careful out there!

        • sunny129 says:

          @Rcohn

          Thanks for explaning lucidly the effect of ‘DELTA’ in option trading and action/reaction by market makers!

        • FleaBite says:

          Selling puts does NOT put you at risk of an infinite loss. If the puts you sold are exercised by the puts owner, they are exercised at the strike price – the price you were willing to buy the underlying security for. Even if the underlying proceeds to fall all the way to zero, the max loss still is not infinite. The max loss will equal the strike price of the puts times number of shares bought minus premium received for the original puts sold. Obviously you don’t want to write so many puts that if they are exercised you are not able to come up with the money to purchase the underlying shares but brokers will not allow you to sell more than the margin in your account will allow.

      • IdahoPotato says:

        Last week, just on a lark I looked up the top three tickers in volume. AAPL, TSLA and TQQQ.

        “ProShares UltraPro QQQ seeks daily investment results, before fees and expenses, that correspond to three times (3x) the daily performance of the Nasdaq-100 Index®.”

        Many of the Robinhood Bros have been speculating like drunken sailors.

    • EJ says:

      Unfortunately, I’ve been holding Softbank just because I want ARM. I didn’t want the rest of Softbank back then, and I *really* don’t want them now.

    • max says:

      No mention of Softbank fraud?

      Softbank is scapegoat.

      culprit is fiat money and central banking.

      original culprit is Larceny in the Heart

  5. Martok says:

    Just read that Softbank of Japan bought billions of dollars of stock options of Apple, Amazon , Microsoft, Facebook and Google.

    That plus all the millions of new investors throwing money irrationally at these same stocks caused them to rise irrationally, and now how the big boys probably took profit, leaving the new investors holding the bag.

    I read so many irrational stories with many investment group’s message board – folks going all in on call options and making big money, but then losing it all this past few days.

    There’s more to come, the economy was shaky before COVID-19, and there are too many factors to come that will push the market lower – hello puts.

    • Dan says:

      I think so too. We know that Softbank now has purchased $4B call options and I think they are all December options. Also, it’s possible that they have been doing this for a long time; perhaps from before Covid.

      If that’s the case, then at least 50% of FANGMAN and Tesla valuations are based on nothing but hot air. All that 50% or so valuation will evaporate fast; that definitely will bring the markets down significantly.

      • David H says:

        Thing is this – it will bring down Nasdaq and sky high tech valuations. S&P 500 still has a huge amount of ballast in the form of companies that are already sorely undervalued. I read a piece recently that suggested, hard core shorting the SP500 and expecting a return to March lows is nonsensical- you’ve got more stimulus than ever before, promises it won’t be withdrawn, and apart from bloated Apple and Microsoft, a shitload of companies that will recover as the virus abates. I think deep OTM put sales will make a fortune as we fall towards 10% and then stabilise

        • cb says:

          David H says: “S&P 500 still has a huge amount of ballast in the form of companies that are already sorely undervalued.”
          _____________________________________

          please name a few

        • sunny129 says:

          FED is the Mkt and NOTHING else matters!

          Besides any news on
          1. Vaccines
          2. therapeutic break
          3 Stimulus
          4 More QE + Neg rate(?)
          5 Jawboning by Trump Team!

          can make the mkts more volatile in the next 8-10 weeks!
          Betting on or the other direction without hedging id DEADLY!

          Experience is a good tutor but the tution is very high!
          (Been in the mkt since ’82)

          Be careful out there!

        • David H says:

          @cb – Berkshire Hathaway, mosaic company, Nielsen holdings, Nucor, Abbott laboratories, BMY, and many of the dividend aristocrats and dividend kings that go on supporting the US economy. The point is clear: this isn’t a uniform bubble like we’ve had before. It’s distorted by colossal rises in big tech and there are quite a few pockets of value that will be unleashed when we control the spread of the virus. The list goes on – house builders, infrastructure companies, cement makers etc etc. I concede falling tech and rising value shares might mean we trade sideways for a while, but I’d eat my hat if we get even close to March lows

        • sunny129 says:

          @David H

          ‘are quite a few pockets of value that will be unleashed when we control the spread of the virus’

          Sounds reasonable on the surface but considering the reality on the ground, coming ahead in the next year or two!

          – Will Covid 19 go away by this time, next year UNLIKELY
          -Will there be effective vaccine? against various strains of the virus -again unlikely
          -Will the Economy of pre-covid come back 100% – VEY, VERY likely. May be even 50% is optimistic!
          Per John Hussman and John Bogle(diceased) the return on S&P for the coming decade will be NEGATIVE. Study charts at John Hussman site (free)
          Mkt cap to GDP ( Buffett’s famous indicator) is NOW > 170%
          (any thing >90% economy retreats!)
          (Been in the mkt since ’82+MBA knowledge)

          REVERSION to the mean can be delayed but cannot be banned!
          Many newbies (below 45y) who have entered the mkt after GFC have never gone thru a SECULAR BEAR mkt. They are in for a shock of their life time ( investment legend Jimmy Rogers!)

        • Dan says:

          All you need to do to see that all stock markets are overvalues is to look Buffett indicator which is currently 179.5%.

          Also, when the markets go down, they all go down. There might be a few percentage point differences,but they all go down just as we have seen the last 2 days. Also, I think average S&P’s valuation stands at 32.xx right now. So, way, way overvalued.

        • David H says:

          Overvalued – absolutely . Buffett indicator was 186% before this sell off

          But I think we are in the equivalent of 1996-1997; same signs then as there are now. Experts saying we are in a bubble, same fed conditions, same valuations. Stocks went on a volatile year hire that saw the index Double. The problem with bubbles is you can tell when you’re in them but it is impossible to predict when they burst. Best thing to do is to invest with the trend until the market falls out of its linear trend . Then short the market. Having anything more than a small short now is tough to hold and – apart from into the election – risky. If I’m wrong well I’ll sell 200 day moving average and then linear trend. Heads, I win. Tails, I don’t lose too much

  6. Rosebud says:

    Small error here Wolf.

    The giant 5 are the Trinity, plus Two artist proofs.

  7. Satya Mardelli says:

    The weekly chart of AAPL recently touched 4 SDs above the 200 period MA. 3 SDs is quite unusual but to hit 4 SDs is flat out bizarre.

    The daily chart of AAPL looks better in relation to the weekly chart. Its only 3SDs above the 200 day moving average. That’s still stratospheric

    Its hard to find any chart, any where at any time where price action is 4 std deviations above a 200 MA

    • Skara says:

      Wasn’t the entire QQQ trading at 4 SD over the 200 day moving average a few days ago?

      • Satya Mardelli says:

        Skara – it topped out around +2.7 SD on September 2. This was a daily QQQ chart.
        I use Bollinger Bands. The default setting with most charting services is +/- 3 SD with a length of 200. You can modify the chart. Just change the upper band to +4.
        That will display 4 Std Dev above the 200 period moving average

      • andy says:

        Skara, Nasdaq was trading at 4 standard deviation from 200-WEEK average. per Lance Roberts.

    • Old School says:

      We will see how it goes, but seems like we are setup for large cap big tech bubble that will go down in history books. A few observations:

      1. Big tech is valued close to 2000 tech bubble.
      2. DC political action groups are already setting up a disputed election scenario. Market will sniff this out in advance.
      3. Fed zero rate policy, means too much financial gambling going on.
      4. Indexing on the way down means big caps get sold the most.
      5. Potential for loss of confidence in Fed put.

      • sunny129 says:

        All that means very LITTLE when FED is the MARKET since ’09! Perception narrative is still powerful under ‘CRONY” Capitalism unlike under ‘the old genuine, American Mkt Capitalism’ ruled by FUNDAMENTALS prior to March ’09!

        Besides any news on
        1. Vaccines
        2. therapeutic break
        3 Stimulus
        4 More QE + Neg rate(?)
        5 Jawboning by Trump Team!

        can change the direction in less than a few seconds. Don’t forget that ALGOs out there are active unlike any time in the mkt history!
        (Been in the mkt since ’82) Seen that, Done that and still survived!

  8. Lee says:

    Interesting moves in US shares.

    We have our own Australia listed companies that trade at ridiculous prices and valuations and that have had ridiculous moves up and down over the past 6 months or so too.

    Some of them you may have heard of such as Domino’s Pizza. The year range is A$41.66 to A$87.58. Low was $44.75 in March. So a 100% or so gain since the low. PE ratio of 52.

    Yeah, only 52 for a company that flogs pizzas.

    Another company in the sector, Collins Food, a KFC operator here in Oz, now sells at $A10.28. Year range A$3.50 to $A10.96. Again the low was in March. This time about a three bagger from the low. At this price it only has a PE ratio of 38 times!!

    In the tech sector the ASX has caught the American high tech disease too.

    The ‘star’ of the show is a company called Afterpay. They are in the USA now too and something called a ‘buy now pay later’ outfit which allows you to spread your purchase across four payments on your credit card.

    I guess it is something like a credit card for your credit card!!

    Don’t know what the big deal is with it as they had the same type of arrangement way back in Japan 35 years ago where when you bought something you could state how many installments the purchase price would be allocated to on your card. No big deal.

    This one is a real mover. Closed at A$78.20 down A$5.59 on Friday. The year high is A$95.97 and the low……………….A$8.01 again in March.

    This one is a ten bagger in less than six months.

    Market cap s a stunning A$22 billion. It is now the 17th largest company by market cap on the ASX. Of course it has a negative PE ratio. Total sales were about A$500 milllion for the year. So it trades at 44 times sales as well.

    Up 140% over the past 52 weeks.

    Just a few examples.

    And in the BIG news today, the state government here announced its ‘roadmap’ for getting out of the lockdown.

    Our stage four which was supposed end on the 13th is now extended for another two weeks……………….That means we’ll have been in a restricted lowdown mode with curfew for 2 months at that time point.

    Two months!!!

    The ‘roadmap’ is really a trainwreck for the state, its economy, social activity, and will ensure tht the economic disaster caused by the inept and incomp state Labor government that allowed the virus out into the community will continue and spread more pain all over the city and country.

    I wonder what the reaction will be in the share market on Monday…………..

    The so called goal posts in the roadmap are going to be almost impossible to achieve.

    Our postcode data shows that we have a whopping total of TWO, yes, TWO active cases now. That works out to less than 4 cases per 100,000 people.

    Of course there are huge problems with these stats as they only count the cases that have been found through testing. There could be zero additional active cases or there could be 10,000 active and asymptomatic cases or more in the area. What we do know is that there are zero deaths and few, if any cases in the Aged Care facilities in the post code.

    It seems like we’ll be in some sort of lockdown or restriction forever here.

    More info about the ‘official’ plan and changes will be released later, but nothing to look forward to at all.

    • Bill from Australia says:

      GO, Daniel GO, PLEASE. JUST GO.

    • Fat Chewer. says:

      I hear you brother. I lived through Prison State Victoria and all I got was this fat ass! Sales of pants must be a big winner. And mumus. Ugh.

    • Paulo says:

      Holy Moley

      Afterpay? This says it all!!!!

      Anyone here remember the good ole’ days of the ‘layaway plan’? You needed something so you paid ahead of time for what you wanted. The vendor would put the item away on a shelf in the back room while you made payments. When you had the item paid for the product was yours to take home. It was just put aside with your name on it. My young wife bought a very good coat this way.

      Comments here are boggling. What ever happened to a company making a better mousetrap, and the lucky/wise investors who did their homework and got in early did well? But your comments describe a process of using predictive charts based on market trends and buying sentiment. It’s like watching charts about casino payoffs. Crazytown.

      This deserves to collapse and people should lose their money, imho.

      • RightNYer says:

        I’ve been saying that for years now. Momentum and FOMO investors losing their lunch would be the best thing to happen to the market for a long while. An expensive lesson, yes, but if it ushered in a new era of fundamentals actually mattering, that would be a great thing.

        • cb says:

          The FED has made a large contribution to ruining the market, what portion of it that wasn’t already a scam. There have been other government contributors, like tax deferred accounts that automatically pump money into the market week after week. Continuous inflows, no matter the current sensibility.

          Wall Street, the “bastioned of free markets”, has been promoted and propped up by government and FED intervention for decades. That is a large part of the mess we find ourselves in through the corruption of financial engineering.

      • cb says:

        Paulo said: “What ever happened to a company making a better mousetrap, ”
        ________________________________

        they all get pitched and bought on Shark Tank

  9. cb says:

    Wolf said: “as the Fed was throwing $3 trillion at the markets,”
    ______________________________________________

    How would this work. Did they not buy primarily treasuries.There is no evidence that they purchased stocks. There is a meme out there, shared I believe by even such notables as Lacy Hunt, that those purchases simply exchanged newly created money for treasuries, which stay as FED Reserves, and which reserves can only be released from reserves through loans – – – which is difficult because of the shortage of willing borrowers that the banks are willing to lend to.

    • Old School says:

      Not really sure myself as Wall Street and hedge fund speculation is above my pay grade. My simple understanding is:

      1. The treasury market is the foundation and measuring stick upon which the financial system rests.
      2. By purchasing these assets you alter their price which affects all the other prices in the system.
      3. If rates are near zero, the incentive to speculate on financial assets go up.

      That’s my understanding of the theory. In the real world in the gambling hall I have no idea how it works.

    • RightNYer says:

      My theory is that it’s not that the $3 trillion goes into the stock market, but that it creates investor confidence (based on FOMO, TINA, and the “Fed has my back!”) for investors to go all in.

      The problem with that is once the Fed is exposed as being “out of tools” no matter what jawboning Powell does, that confidence drops like a rock.

    • Wolf Richter says:

      Here is the short version:

      The Fed creates money to buy Treasuries from primary dealers. The primary dealers use that money to buy Treasuries from investors. Investors who sold Treasuries to those primary dealers now have cash that they need to do something with, and so they invest it in stocks and other things.

      The Fed has also bought lots of MBS, same principle.

      That’s the primary effect. There are also secondary effects (knowledge that the Fed is bailing out the markets with asset purchases, and everyone wants to trade with the Fed), and tertiary effects that lead to the euphoria we have seen.

      • cb says:

        Thanks for calling out the MBS purchases, which you have clearly identified in past articles.

        Your explanation makes perfect sense and is logical. I know of no way to verify it because of the opaque (some might say corrupt) nature of our banking system. Apparently, many “experts” have the same problem, as I am reading a lot of commentary about FED treasury purchases being trapped in reserves. I find in very confusing.

        For your review, here is an article by Bloomberg quoting Lacy Hunt (who I have great respect for).

        https://www.bloomberg.com/opinion/articles/2020-08-14/longtime-bond-bull-lacy-hunt-sees-one-huge-risk

        Thank you for your continued efforts to educate us.

      • Lisa_Hooker says:

        Wolf, you seem to have skipped the step where the few primary dealers (apparently blessed by the hand of TPTB) bid on and buy Treasuries directly from the US Treasury, mark them up and sell them to very large investors or a FRB. I agree that the sum of effects results in money to Wall Street. Or have I missed something?

  10. Tony says:

    “Don’t fight the fed” is the 2020 version of “they are not building more land.” Both are easy to remember one liners that provide all the justification the newbies need to keep speculating til the inevitable sad ending.

    • MonkeyBusiness says:

      Without newbies, how do oldies make money?

      That’s how we nail these people to the cross of experience.

    • Old School says:

      I can’t see anyone buying Fang stocks as a buy and hold. It violates simple math that your purchase price of an investment is a key metric in your rate of return.

    • cb says:

      They are not making more land, which is a contributor to its value. $ can be created at will, and is precisely why they have been steadily losing value.

      • RightNYer says:

        Right, but the fact is, most land in America is practically worthless. People have paid enormous premiums to pack into a few large cities (a trend that might reverse somewhat due to work from home), but you can still buy 10 acre plots for virtually nothing in the middle of nowhere.

        • cb says:

          @ RightNYer –

          Duly noted. People go to where they can make a living. That seems to be large metropolitan areas. This is where the pay is. It is also where the high rent is.

      • Lisa_Hooker says:

        Spent some time in Chicago where they made a lot of land in the lake. Also south of San Francisco where they also created a lot of land in the bay. Quite a few other places too. Adherence to a shibboleth is not investing, however comfortable it feels.

        • cb says:

          Sounds like an expensive proposition. There, land must have great value if they go to such expense to make more of it.

    • IdahoPotato says:

      My 28-year-old nephew introduced me to a new “easy to remember one liner” to justify his optimism.

      “This tech revolution is different from the one in 2000”.

      Mmmmmkay.

      • Darkstar says:

        I hate to say it, but it IS different this time – in 2000, almost all tech was speculative – this Internet is gonna be big! Of course there was more garbage back then than now – eg, Pets.com, FreshDirect, etc. MSFT took 16 years or so to get back to its 2000 level.

        Now, especially in the pandemic, companies like AMZN, AAPL, MSFT, FB, GOOGL etc. are indispensible parts of our lives. And Pets.com and FreshDirect were just 20 years too early (Chewy, Instacart, etc.).

        So even though everything is almost as overvalued as it was in 2000, I don’t see the “big 5” (plus another dozen or so) dropping 80-99% like they did back then (I’m thinking MSFT, CSCO, LU, SUNW, WCOM, Qualcom and of course the “crooked E” ) – they’re the new utility stocks. More like 30-50%, as if they were Proctor & Gamble or Coke during the dot bomb. But TSLA, Twilio, FSLY, ZM, Etsy, Dropbox, SHOP, etc? Yeah, those and a lot of others could and probably will go down 80-99%.

  11. MonkeyBusiness says:

    The Gamma play created a huge wave UP, but the unroll might take us down to March lows.

    Hang on tight people, either way some people will lose their pants, and that might cause you to lose your grip ;)

    • GotCollateral says:

      Thinking about this in the context of the swing low from dec ’18 to swing high to feb ’20: anemic volumes, divergence between equal weight indices, more CB hospice care and took 2-3 weeks to wipe a little more than years gains out and make a new low…

      This time took about 6 months with anemic volumes and even worse divergence between equal weight indices and with even more CB hospice care…

    • Rcohn says:

      Short gamma applies to both up and down moves . In my previous example suppose a trading firm sells 100 calls with a delta of .50, thus creating a delta neutral position. Now suppose that the stock moves down so that the delta of the call is .40. Now the trading firm is long 1000 shares. If that trading firm does not want to be net long, they must sell 1000 shares . If you multiply these 100 calls by 1000, then the potential exists for real panic .
      Many option traders tend to Have the mentality of professional gamblers in that they will play only when the odds are in their favor. They are overpopulated with professional bridge, poker and blackjack players.

  12. Rcohn says:

    The market topped out in early Sept in 1929 and 2000. In 1987 it topped out in late Aug.
    History does not repeat , but it sure seems to rhyme .

  13. OSP says:

    “the proceeds of which are distributed as stimulus, unemployment, and bailout monies to consumers, businesses, and municipalities, and much of this money is spent, rather than handed to Wall Street.”

    Hmmm, Main Street, rather than Wall Street…imagine that

    • cb says:

      Does Wall Street have any productive capacity?
      The only capacity I see is to funnel the productive capacity upwards, from the productive to financial operators.
      It is perhaps the most over-rated and coddled “institutions” of all time.

      • Rcohn says:

        NO
        Three factors have exacerbated this trend
        1.Black Scholes option formula which along with publicly traded options (1973)opened a whole new world for financial gamblers
        2.making it legal for companies to buy back their own stock in 1982
        3. 2008 Fed bailouts. This led to the Repo bailout of late 2019 and the current massive bailout of Treasuries vs Treasury futures , the bailout of corporate junk bond funds and the attitude of a FED put.
        Almost by definition this FED put will at some point in the future will have to be so massive that it no longer will exist

  14. CRV says:

    I’m also watching the EUR.USD and there is a strong correlation with the stock market moves (Dollar up = markets down). How is this a factor in all this? How do markets make corrections for currency changes?
    I imagined it could be like you have one part fixed weight in dollars and one part fixed in Euro’s. When the dollar goes up you have to adjust. But that would mean the euro-stocks had to go up. But they don’t.
    I’m missing something obviously.

  15. John says:

    Wolf,
    Sounds like bailing out Main Street and not the banks no more. Read something about D. Bank selling brokerage back in September when repo went nuts and you explained what was happening then. I think the dealers are well supplied here, from what you say the fed is doing. I think there are pockets of fundamentals working, regardless of prices of assets. No high flyers for me. In these times the options are telling, wished I looked, got a little lazy, I usually do. Watching the dollar, seems the tell all, and how low it goes. Uup is the symbol. If it really tanks I’m afraid for the world, I believe there are things not being told.

    • cb says:

      If they just stopped bailing out the Wall Street/Banker complex, main street would take care of itself.

      There are always things not being told. We are dealing with a bunch of liars and manipulators. and thieves

      • 91B20 1stCav (AUS) says:

        cb: “…as you travel through this lifetime you’ll meet lots of funny men, some rob you with a six-gun, and some with a fountain pen…”

        -woody guthrie, “Pretty Boy Floyd”

        may we all find a better day.

  16. Jmurr says:

    So, if you take the # receiving unemployment benefits divided by the labor force #, I get an unemployment rate of 18%.

  17. historicus says:

    Wolf…
    I would not put it past these central bankers to be doing something we cant see.
    The sudden drop in REPOs….
    the massive debt seemingly not having an impact…
    Could it be the arrangement with Blackrock hides some actions?
    And what of the “transparency” of the Discount Window, and the waiving of penalty rates?
    Your thoughts…

    • Wolf Richter says:

      historicus,

      You keep saying the same thing — the Fed somehow buys stuff “secretly” — and I keep responding the same way. So if in the future you’re going to post the same thing again, I’m going to delete it as a “broken record” – commenting guideline #4.

      So here we go:

      There are lots of reasons why the Fed wouldn’t buy assets “secretly,” even if it could. The most important reason is that it DOES NOT WANT TO buy assets secretly because it would destroy its most important tool, that of “jawboning,” — of creating hype with its announcements, and this hype alone drives up markets.

      For example, the Fed’s corporate bond buying: The Fed has relied on “jawboning,” namely making all these announcements, and this created a huge amount of euphoria in the bond market and junk bond market and loan market, as other investors were trying to front-run the Fed by buying those assets, which created the biggest corporate bond bubble I have ever seen.

      So the Fed didn’t need to actually buy corporate bonds, and it has barely bought any bonds. Powell and others have explained that because “markets are functioning” again, it didn’t have to buy many bonds and may not have to buy many bonds.

      That’s how the Fed works. Its primary goal is market manipulation. And its primary tool in that are its announcements and Fed head talk. Doing anything in secret would destroy this tool.

      • andy says:

        How is it then Alan Greenspan delivered his talks in incomprehensible English?

        • sunny129 says:

          His style apparently:

          If you think you have understood what I mean, then you have misunderstood me’!
          Go Figure!?
          Analysts used to spend hours in analyzing re ‘What exactly he said’!

      • cb says:

        @ Wolf –

        The FED sure has an an aversion to being audited.

      • sunny129 says:

        Why do anything in secret when the ‘JAW BONING’ ( without real followup later, unless really required) is working so fine, right?

      • historicus says:

        Indeed Powell is a manipulator of “perception” and has admitted to such with his comments about the perception of inflation.
        And yes, if Powell gave the wink and nod to the big trading houses that if they buy, all will be well and the Fed wouldnt have to lift a finger so to speak. I recall Motely Fool issued a remarkable never before issued “all in” market call. I’m guessing that wasnt based on moving averages, stocastics, or earnings, but more on a “heard on the street” conversation with those who are plugged in.
        And, as for the Fed doing things off the books, in 1987 the Fed bought SP futures at the CME to halt that sell off. Never reported, never admitted to, but if you can find some traders that were there that day you verify. My point, it does happen.

  18. Dave Mac says:

    Vedic Astrology is predicting large scale unrest when Mars enters Aries on Sep 09th. This will last for 2 months.

    I guess massive protests and increased violence mean one thing for stocks:

    Bullish!

    • Petunia says:

      Reminds me of Evangeline Adams a famous astrologer to investors in the 1920’s. Let’s just say her predictions didn’t turn out well in 1929.

      • Darkstar says:

        I know a Vedic astrologer, who is predicting a market crash on November 24th. Seems about right, as that will mark 3 weeks into the contested election. I’LL predict that that’s when all the votes will finally be counted, and Trump will refuse to concede his loss. FWIW, said astrologer predicted a Trump win in spring 2016, and nailed the start of the 2018 plunge to the day, 9 months before. He’s also been predicting a massive Trump loss since spring 2018. At any rate, I’m willing to stake my predictive reputation on November being a shit show. Trump does look like he’s headed for a loss, for a ton of reasons, and he’s already said in so many words that he won’t concede a loss, something we’ve never seen before. And the market hates uncertainty more than anything else. I’m holding a ton of cash (recently sold my house) and plan on selling January/March SPY puts – once they get really expensive as the market starts to go down. FWIW, the market already sees this coming – check out how much more expensive the December SPY puts are vs October (and not just due to theta – it’s been so for a while).

    • Lisa_Hooker says:

      But is Mercury retrograde? That is very important!

      • sunny129 says:

        Wonder, Why NOT, all the famous Astrologers are NOT rich, yet?

      • 91B20 1stCav (AUS) says:

        Lisa-Mercury is no longer at Ford and has now loaned its name to an insurance company…

        may we all find a better day (or planet…).

      • 728huey says:

        Mercury goes retrograde in October and goes direct on November 15th. Also, about Mars entering Aries, Mars also goes retrograde in a few days and doesn’t go direct until around Halloween.

        • Lisa_Hooker says:

          Thanks 728 – I’ve wondered, is retrograde good or bad? It doesn’t seem to matter in my life.

  19. Lou Mannheim says:

    Work hard and save.

    • sunny129 says:

      Save and invest behind Fed’s put and ride along, like those lucky who have done it since March of ’09!
      :-)

  20. breamrod says:

    save in what? the fed has two choices. Let interest rates( long end) rise and protect the dollar or monetize the debt to keep interests rates steady and let inflation rise . The latter is not a pretty picture. But I believe they will do the latter to protect the stock market as that’s where all of the wealth is. Meanwhile the average person gets screwed as usual!

    • RightNYer says:

      I disagree on this. The Fed cares about its own power more than anything else. This power is derived from global confidence in the dollar and its status as the reserve currency. If it looks like this power is threatened, it will do what it needs to to keep it.

    • Lou Mannheim says:

      As I watch Mohammed El-Erian speak on Sunday morning the answer is equities of course! Actually I don’t know if he said that, I’m just tired of hearing BS and turned it off.

      If you were replying to my post above yours, the answer is you can’t save, because the Fed will destroy you with inflation. They want a nation of risk-prone investors – it’s good for hegemony.

      • sunny129 says:

        No inflation unless VELOCITY of money will increase (+ increased consumption) but it is DECREASING with increase in debt on debt spending. The More M2 increases the velocity is increasing.

        This doesn’t mean that purchasing power is NOT going down. but the the purchasing power of other global currencies are losing faster than US $.
        Good discussion of inflation vs deflation at realinvestorsadvice com site(free) There are forces on both sides but the outcome is NOT clear cut. With massive DEBT of record everywhere, NOT being paid but instead the interest servicing of that hunoungous debt is slowly increasing, inflation is very unlikely. CBers will try for inflation but have they succeeded so far? They cannot even exceed even 2.0% after 11 years.
        Japan is trying over 2 decades!? Where is the inflation?
        DEFLATION is more likely. The real rate is now Negative 1.5% ( inflation 2.0 minus 0.25%)

        • sunny129 says:

          correction:
          The More M2 increases the velocity is DECREASING.
          Look at the charts at RIA

        • cb says:

          If the money supply is rising, M2 by your stated measure, you have inflation and your pre-existing dollars are less valuable.

          If assets, real estate, food, tuition, rent, medical care, etc. is going up, then you have rising prices.

          You can have either an increasing money supply (inflation), or rising prices with slowing money velocity.

        • sunny129 says:

          @cb

          When M2 is increasing unless there is velocity with money going into consumers hand, there is no inflation except in assets in the mkt. Right now consumers up to their neck in debt and Banks have restricted lending.

          Fed & CBers are trying to shoot inflation over 2.0% since ’09! So Bof Japan for over 2 decades! Where are they now?
          ‘Realinvestmentadvice’ has excellent charts re inflation vs deflation.

        • cb says:

          sunny129 said: “When M2 is increasing unless there is velocity with money going into consumers hand, there is no inflation except in assets in the mkt.”
          __________________________________________

          Fair enough, but I think this supports the contention that M2 increasing is the definition of inflation (an inflating money supply), and asset prices going up is the definition of rising prices (even if not in the joke CPI). This also exemplifies the pernicious effects of the Cantillon effect whereby increasing the money supply and wrongly injecting it makes the rich richer and the non-rich relatively poorer. By pushing those asset prices higher it makes it harder for those at the bottom to grasp a rung on the ladder to prosperity. Hence, AOC (Alexandria Occasio Cortez), generational discontent, protests and riots?, a turn away from capitalism, etc.

    • cb says:

      The system is not designed for the average person. It is designed for an elite.

      • Lisa_Hooker says:

        “The system is not designed for the average person. It is designed for the already rich.” FIFY
        I vehemently disagree about “elite” as most are anything but.

  21. Island teal says:

    Morning… good article and comments. Makes me feel much better re my 2021/ 2022 LEAPS on Ag and Au miners.
    Still LoL 😹 FANGMANTIS

    • Tom Pfotzer says:

      I didn’t know about LEAPS, did some poking around based on your remark. I like the strategy, Island. Looks good.

  22. Ed says:

    If you feel uncomfortable about shorting the S&P 500 you could use the MES Z 20 with very little risk. I use it when I am not sure of the market direction.

    • cb says:

      What is the MES Z 20? Even google doesn’t know.

      • Ed says:

        The MES is the mini ES for trading the S&P 500 in the futures market. The ES is $50.00 a point up or down where the MES is $5.00. The Z means the December contract and the 20 means the year. For more information visit the CME website. We are now trading the MES U 20 September contract but that is ready to expire shortly. The MES Z 20 would be good until the end of this December. The MES is almost identical to larger ES just on a small scale. It is very easy to get in or out of a trade. They also have a Mini for trading the Dow, Russell, and the Nasdaq.

  23. Corporate buybacks are apparently running full speed, and that means shares are disappearing, causing buyers to fight over every share offered. In 87 put sellers were caught in the downdraft, but here we could melt up 20% in a single day. Call buyers manipulate prices higher in order to push their strikes in the money and exercise shares. The gamma trade is off. Wed’s action retraced because many call buyers are retail and don’t want the shares. One contract is 100 shares, times the SPY price of 350. The share hunt intensifies driven by heavily capitalized investors. From 94-00 the VIX, the S&P, and the dollar were all rising. Today we have a shrinking float and trillions in Fed stimulus, and zero interest rates. We hit warp speed sooner.

    • Wolf Richter says:

      “Corporate buybacks are apparently running full speed,..”

      Only for a few cash-rich companies such as Apple. Most other companies have stopped entirely.

  24. Concerned American says:

    Interesting times. Can the Fed really afford to let this bubble burst a couple of months before the election? I can already hear the screams emanating from Washington.

    • MonkeyBusiness says:

      With the current occupant of the House painted white, you’ll get screamed at no matter what. If you work at the Fed, why would you want 4 more years of that?

      But then again the Fed is not in the business of protecting the government, it’s the rich they are concerned for.

  25. Yertrippin says:

    The “buy the dip” meme-ing hasn’t happened yet. Should start pumping Monday night. We have at least one or two more sweeps of degenerate gambler money. So buy..or don’t!

    Seems the only ROI for the rational retail investor so far from this debacle is hindsight and a view behind the curtain. My shorts are waiting patiently.

  26. Macro Investor says:

    I find it amazing that comment boards like this are nearly 100 percent bearish, when for the most part the market has been bullish for 10 plus years. It’s like these financial sites attract only the people expecting that 50 million year asteroid any minute now.

    Obviously this must be a minority opinion, a non scientific poll. Where are all the bullish investors who keep bidding stocks higher?

    • Lisa_Hooker says:

      #1 – I can always find someone to buy my tulip bulbs for more than I paid for them.
      #2 – Chicxulub extinction event was 65 million years ago. New asteroid is overdue by 15 million years.
      #3 – “There’s a sucker born every minute.” – P.T. Barnum
      #4 – The mass of young traders have never experienced a bear market.

    • Tom Pfotzer says:

      This is a really great question. Why are we so bearish in the face of such overwhelming, consistent feedback to the contrary? Why do we (the bearish ones among us) have such a rough time facing a reality that diverges from our wishes and expectations?

      a. because the bulls (including our entire society) are feeding on borrowed money, and
      b. we’re not investing in tomorrow’s wealth-creation mechanisms, and
      c. we’re wrecking our environment to fund this party

      I could go on, but the relevant point is that the market doesn’t care. It doesn’t care, and the Fed et. al. has demonstrated that it will do whatever it takes to keep the stock market inflating.

      I’ve been saying “it’s gonna crash!” for 10 years, ever since 2008 didn’t get fixed. That’s a loooonnnngggg time to be wrong.

      Somebody said “what is going to cause the crash?” I mean if Corona can’t cause a crash….what the devil does it take?

      Serious question, bears: Are we emotionally stuck? Are we reluctant to embrace a new reality just because it defies long-held values?

      That might not be a great reason. Realities change in spite of long-held values, and it happens rather a lot.

      Macro Investor is doing us a great favor by asking his question. I’m going to give it a fair hearing. Not going to like it, but I’m going to do it.

      • Rumpled Bemused says:

        I have considered the question, and I am emotionally and logically stuck. I am a deer in the headlights. I have read and listened to the speculations of people better educated and more experienced than myself and they do not agree about the future. So what to do? So much risk has been created that I don’t think you can avoid it all.

        Bottom line, I don’t know how to invest in a world where government, corporate and private debt no longer seem to matter. I am the wrong man for these times.

      • 91B20 1stCav (AUS) says:

        Tom-you’re quite right with a/b/c. Human nature, however, tends to take a ‘carpe diem’, self-centered attitude that reflects the belief all time/reality began at one’s birth, and proceeds only in the window of the following life. Given several generations of a society where the living has, for the most part, been easy, the general tendency is to believe in the eternal stability and baselines of the moment (ref: Lisa’s #4 ‘…the mass of young traders have never experienced a bear market’). Whether the captains of the world economy can keep juggling the chainsaws is THE open question, but, like predicting earthquakes, answers lie in a very inexact science. Tectonic forces will assure that massive quakes arrive, but not always in the course of individual human lifetimes. People forget, then fail to prepare in their ignorance.

        Be prepared (if still living when the last wheel departs this wagon) to hear the wails of “…who knew???”. Cassandra saw the future clearly, and was severely kicked around for her trouble.

        Or, as in Jackson Browne’s lyric: “…Don’t think that it won’t happen just because it hasn’t happened yet…”.

        May we all find a better day.

    • VintageVNvet says:

      Maybe it’s the same reason lamborgini and rols roy and the ferrari folks don’t advertise on TV, to wit, buyers of those type cars don’t watch TV…
      So, in this case, maybe the folks who are bullish are too busy figuring out the latest and greatest way to be able to control the markets to their benefit while screwing all the working folks, AKA retail investors, and the bearish folks who do have the time and interest, mostly interest in trying to figure out what the heck is going on.
      That’s exactly why I have been out of the SM since early 80s, in spite of being invested in it for about 30 years up to that time…(With help from family early on.)
      IMO, the threat of the ”crony corruption” that made me stop playing in a venue where not only I did not have any control, the actual control was so well hidden I could not find out anything about the obvious manipulation taking place.
      Now, thanks to Wolf and others, including the very well informed ”commentariat” on this site, as well as other sites, We the Peedons can at least see a ton more clearly the manipulations and incredible corruptions.
      So far, in spite of the liquidity problems, we are most likely going to stay out of the SM and Commodities, and go back into RE mkt once it appears to bottom out.

      • cb says:

        Unfortunately the real estate market is also heavily distorted by FED/Government/Wall Street actions. The continuous debt creation has driven real estate prices and is a negative for those trying to gain a foothold. All the loan programs – – – FHA, VA, Freddie, Fannie – – – all more bad than good for Americans at large. It advantages some, but overall it is a field unleveler.

    • David H says:

      I have to be honest for the next while, sadly, the way to benefit from this is to Sell Puts and take very large premiums from people who are overly bearish and willing to take a bad bet that the market will fall. I sold a TQQQ 100 put for next year and it had a $30 premium, that was like more than 10% of the underlying. It’s up 20% in a day And I’ll probably keep the whole premium as the option I sold expires worthless. I have good, practical advice to the bears: stay invested. Dive out of this market when 1. The fundamentals are poor, Which they are now; and MOST CRITICAL OF ALL , 2. when the linear trend has been breached and we really go down. My honest opinion, that’s years away from now, when everybody is partying, volatility is as low as 2019, and everybody is bullish …..

  27. Lisa_Hooker says:

    Thank you Wolf. This site is redoubt of sanity. And, my thanks to all the commenters.

    Yesterday:
    Authentic paid $18.60 to win (930%, 339,450 annualized).
    Mr. Big News paid $16.80 to show (840%, 306,600% annualized).
    2 minutes of stress, very enjoyable.
    I made a LOT of money after considering all bets placed.
    2 minutes of stress, then it’s over, stress gone, sleep well.
    Note: this is work. You need to do due diligence with horse history, tracks, jockeys, trainers, weather conditions, and last minute odds changes. No more difficult than reading statistics and analyst’s reports. A lot more fun than the indecipherable “markets.”

    • Fat Chewer. says:

      It occurred to me that may be a better way to make money, but my addiction to Wolf Street means I can’t find the time. In Australia during the 30s we had Phar Lap to bet on. Now he was a real money maker! Good luck.

    • I pulled up the winner in five minutes. Been spoiled since Baffert offered up War Emblem at 20-1. No bets here, and congrats to you. Horse and rider were perfect. The track minus 15% is still a better bet.

  28. Rosebud says:

    “The Giant 5 market capitalization had hit a new mind-boggling record of $7.81 trillion on Wednesday – despite Apple’s drop – having skyrocketed from their crisis-low ($4.1 trillion, on March 11) by 91%, or by $3.72 trillion, just these five stocks.”

    thanks Wolf, I was wondering about this number ($3.72 trillion). This is going to sound crazy, but this is the proper value of Art Basel’s Banana.
    Now all that money, that’s everybodies, especially those that have suffered under Covid.

  29. Michael Engel says:

    1) After reaching week #9 and a Buying Climax on Sep 2, SPX flipped on Sept 3. SPX closed on Fri > Feb high, which is a positive sign.
    2) After x2 weekly Bearish Divergence early in Mar & Apr 2020, TLT is forming a 6M Trading Range (TR).
    3) After rising from the Mar lows, IWM looks tired, shortening it’s thrust. IWM stopped < Jan 2018 Buying Climax and the mid 2019 TR highs.
    4) The markets will go wherever the invisible hands want to go
    on Sept 10 and on Fri Sept 11.

  30. sunny129 says:

    Investment nuggets:

    For every BUYER there is a SELLER (both think they are right!) – Barron’s

    Value is what you get for the Price paid (Time will judge that later)
    Single most mkt predictor – Mkt cap to GDP. Now over 170-180% a record! ( once >90%, Economy suffers)
    -Warren Buffett

    Mkt may remain more irrational than one may remain SOLVENT

    Those who cannot remember the past are condemned to repeat it
    George Santayana

    Experience is a good tutor but the tution will be very high!

  31. Robert says:

    “It might have made sense from a Fed-QE point of view, as the Fed was throwing $3 trillion at the markets, but the Fed has stopped doing that. Its balance sheet peaked on June 10 and has since then declined by $151 billion.”

    Did the Fed stop interfering in the credit markets? Or do you know something the rest of us don’t. It’s not what the Fed balance sheet is now, it’s what the Fed has said it will do to keep inflating the credit bubble (just about anything). Stocks will reflect (longer term) the value of the credit markets.

    This is likely a short term pullback unless some type of six sigma event intrudes.

  32. Fat Chewer. says:

    I think it will go to the Omega play after going through both the Greek and Phoenician alphabets. Beware the sneak digamma play.

  33. Lee says:

    So Victoria locks down forever and the ASX initially falls 1%.

    The share market here is now up about .3%………..go figure.

    Looks like not only are restaurants in trouble, but people aren’t going to the doctors either with a whole bunch of clinics set to close.

    NSW has had about 1000 fewer deaths than at the same time last year, but look for a big INCREASE in the death rate next year.

    THe postal system here is stuffed as well and it looks like more of the same for the next couple of months.

    Last two DOMESTIC packages that have arrived at the house:

    One took over one month and the other took 15 days.

    A letter from the UK took about the same as the package which only had to go 400 kilomters, but went on a 3000 kilometer trip to get here.

    Still waiting on several others and expect them to be several weeks as well.

    • Fat Chewer. says:

      My electricity bill was so late I almost missed the early payment discount date.

  34. DanS86 says:

    The Fed is using Enron-isque off balance sheet vehicles to get around it charter structure. How much is on the off balance sheet???

    • Wolf Richter says:

      DanS86,

      Yes, the Fed uses those “Special Purpose Vehicles.” NO they’re NOT off the balance sheet. They’re ON the balance sheet. I report on it on a near-weekly basis. And the balance in them has been flat for two months.

  35. Bobber says:

    Common sense says the big tech stocks are going to plateau or start dropping. You can’t keep increasing profits when your customers are stagnating. It works for a short while, but then your customers’ problems become your problems. Plus, most of them are all bumping up against the law of large numbers.

    I’ve heard the lowering of interest rates causes a rotation to growth stocks because of the way discounting works. This explanation has been used to support the current tech bubble. Well, why does one assume today’s big tech stocks will be growth stocks for many years into the future, especially when we project other industries are going to face hard times? Makes no sense.

  36. Cas127 says:

    Hmm…

    Maybe, but…of Russell 2000, there are over 700 companies that have negative income (even with all std GAAP gaming) for past *year* (back to August 2019)…and things have been approx as stupid for *years*…a huge fraction of index members losing money yr after yr.

    Now, the SP 500 is a different, bigger, perhaps better beastie…but…maybe not.

    I’ll run an earnings scan today…

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