THE WOLF STREET REPORT: This Tech-Stock Sell-Off Is a Sign Something Broke

SoftBank was only a cog in the huge machinery. (You can also download THE WOLF STREET REPORT at Apple Podcasts and many others).

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  135 comments for “THE WOLF STREET REPORT: This Tech-Stock Sell-Off Is a Sign Something Broke

  1. Dano says:

    I recall dot.com when stock prices could only grow to the sky.

    Then it became dot.bomb as those prices plummeted to earth.

    In 2007 I closed a business sale 2 weeks after the first two Bear Stearns funds went belly up, hoping the buyers would not pull out. They didn’t.

    Will we get the crash sooner, or later? This is just a hiccup so far. But I have to believe that those who’ve been around for several of this “big” crashes have to be taking money off the table.

    Me? I’ll stick to day trading, and not having more than 10% of my account in the market overnight.

    I sleep better that way.

    • 2banana says:

      Wolf has, indeed, put his money where his mouth is.

      “Will we get the crash sooner, or later?”

      • Lisa_Hooker says:

        Yes!

        • sierra7 says:

          I feel like I’m listening to a foreign language….!!
          “Churn ’em and Burn ’em”
          That’s what it all means to me!

      • Trinacria says:

        Yes indeed, and at some point we are looking at one “whale” of a crash, which will make the early 1930’s look like a goldfish. The parasitic and downright insane behavior that the FED has encouraged is truly beyond words. We are living in a completely distorted and perverted parallel inverse. The highest rollers in Las Vegas are more grounded. I wonder what will happen when the second and probably more severe leg of the crash finally takes hold as there is no more Glass Steagel….if history is our teacher. What will that landscape look like??? Any ideas ??? In the meantime, I will remain debt free and keep my gold and silver positions.

    • Les says:

      The Fed had pulled back the POMO’s for Y2k after the beginning of the year and continued raising interest rates. The tech bubble was still impervious while the old economy stocks were cratering. Some of the biotech bubble stocks rose 10-fold or more from January to March. The brokerages started to raise margin requirements against the tech stocks in April and the Nasdaq took an initial leg down of 40 percent.

      Networkers as a group cratered by 95 percent in 2001. The telecom bubble burst as the CLECs ran out of money and 1 trillion dollars in bond losses accrued.

      • Lisa_Hooker says:

        Worked in R&D for a major telcom equipment manufacturer from ’98 on. The 2000’s were interesting times as everything that wasn’t nailed down was offshored.

        • wkevinw says:

          LisaHooker- did they offshore R&D, design, manufacturing, or what? Do you think that it “requires” the design and R&D people be close to manufacturing so they can make adjustments, analyzer outcomes, etc? (in this field).

          I believe some technologies require that, so that offshoring a bunch of manufacturing slowly (or quickly) degrades the effectiveness of the R&D and designers.

          At first everything is fine, then after some years the progress/innovation gets to be very slow/mediocre.

          Thanks for the post.

        • roddy6667 says:

          Technology has enabled offshoring. I have an American friend who owns a factory in China. He recently moved his family from Qingdao to Spain to run a new business venture there. He can walk the floor of his Chinese factory, observe operations, question workers, etc using WeChat. His manager just walks around with a phone in his hand, allowing the owner in Spain to be virtually there.

        • Ed says:

          Ditto. I worked in high tech starting in the late ’90’s and through today.

          There was massive hiring overseas, particularly in India, starting roughly in 2002 or 2003 or so. It’s still going on but now there’s such a big base in India that the hiring looks smaller . . . I trained a series of Indian guys — really smart guys — at my job. It would have made me very nervous except my company was growing so fast that there was room for hiring everywhere.

    • Bob Hoye says:

      Dot.bomb.
      Very good.

    • Martok says:

      @Dano, – right I remember the dot.bomb days and the lead up to the crash of 2008 right before the election, it may play-out the same way this election cycle, or worse because:

      1) So many unemployed, 18% was said on a previous Wolf post

      2) People will stop buying in this 70% consumer driven economy

      3) This Labor Day weekend will propel a uptrend of COVID-19, IHME projected 410k to 620k dead by Jan 1

      4) Our health care system will falter/collapse as we enter the worst phase this fall and winter just like 1918, – people refusing masks, safe distances, etc.

      5) So many bankruptcies especially small to mid, and of the larger property institutes who aren’t receiving income will collapse too, and likely lending/banking institutes

      6) The week’s Lipper outflows of equity funds shows the largest outflows, and largest inflows to bonds – UBS stated a month ago the smart money was leaving equities

      7) The coming stimulus by Congress and the Fed won’t be enough to overcome these enormous negative forces yet to come, and the current saying that – “the market doesn’t reflect the economy” will fall into the scrapheap of history like sayings of – “it’s different this time”.

      I also have daytrade for years, stopped believing in “buying and praying” many years ago, and only have cash and SQQQ calls for Jan 21, 2020, cause this Titanic market just hit the iceberg, – most all neo-investors will be wiped out, margin calls will wipe out many others, and the long term investors will have to wait untold number of years for a rebound, – this market crash will surpass them all.

  2. 2banana says:

    Leverage works just as well on the up as on the way down.

    Miracle unraveler indeed.

  3. MF says:

    The fact that hedge funds can front-run Robinhood traders is the reason retail investing is effectively dead. There is simply no way to bridge the gulf between normal people and deep pocket investors anymore. You can’t save your way to prosperity because the Fed’s rate repression prevents you from staying ahead of normal inflation. You can’t invest your way to prosperity because of front-running games and runaway asset inflation. Who can save fast enough to keep up with nasdaq growth?

    • 2banana says:

      It does seem insane.

      Billion dollar hedge funds front running tiny mom and pop retail and robinhood investors.

      Talk about picking up pennies in front of a steamroller.

    • Mark says:

      Welcome to the casino… there is no alternative but to lose everything…

    • Old School says:

      An investor isn’t affected by front running to any noticeable degree, because an investor is buying a piece of a business based on expected business prospects and the price of the business. An investor is typically holding the stock for years, not days. A trader, aka speculator is gambling on price movement and may trade frequently enough that getting clipped by a penny matters.

      • MF says:

        You’re right. I should have said deep pocket gamblers, not investors.

        But please don’t be an apologist for strip mining retail investors by acting like it has no cost. Pennies multiplied add up to dollars. Multiple hedge funds front running a single stock raises the price by lots of dollars without adding a single penny to the upside.

        It’s all a big scam. There’s a sucker born every minute and an army of barkers to lure them in.

        • Old School says:

          I don’t like it, because it is front running in my opinion. One of the better books I read ‘Get Rich Slowly’ said never play the short term game because you are always going to be outgunned by the pro’s with more and faster information. I am not saying some can’t do it, but I don’t try.

      • char says:

        It does costs a single digit percentage. Does make it noticeable, even for long term investors.

      • Seen it all before, Bob says:

        I read the book “Flash Boys” awhile back.

        It was very educational on how both the High Speed Trading firms and the banks skim pennies off billions of stock transactions by front running skimming. Wall Street banks charge the HST firms to have fast access. It’s like a fox giving the rooster a fee for access to the hen house. The banks and HST firms make hundreds of millions a year doing this. It’s all legal.

        Personally, I hold for the longer term. If I lose a few pennies every 5 years, I am upset, but not angry.

    • rhodium says:

      Taxed by the govt and taxed by the money ballers. Now all the money ballers want to go to space. Become an engineer building rockets and live paycheck to paycheck, that’s how you’ll get the money back from them. After all it takes a true genius and benefactor of humanity to win at stock market casino games, we should gladly work for these people to make their dreams come true.

  4. Joe in LA says:

    I have a lot of younger friends who are still all-in. They all tell me the same thing: their entire bet is that the Federal Reserve is completely corrupt and would never betray its corporate masters by letting stocks crash. Can’t happen, I am told.

    Don’t fight the Fed is, for these folks, another way of saying: Jerome Powell is a criminal that you can count on to print free money for the equity class. You just have to have a piece of the action.

    Ah, the idealism of youth.

    • 2banana says:

      The greater fool theory in action.

    • Tony in Aus says:

      The re-inflation since March has relied on retail traders like your younger friends buying from the 1% / those ‘in the know’, and when the crash comes it won’t be the 1% that lose out. They’ve been made (more than) whole to this point.

      • RightNYer says:

        Exactly Tony in Aus. It kind of reminds me of Boiler Room. They have to slowly sell off the “house’s” position before they can let the demand dry up and everything crash.

    • EJ says:

      I mean, there’s a nugget of truth there, but that view is obviously too extreme and unbalanced. Unfortunately, extremism is in-fashion in 2020.

    • Raymond Rogers says:

      It’s not as bad as a supposition as you might think. It’s not just rich people who depend on the markets. Governments at all levels need these markets to climb higher for a number of reasons. The FED might let things slightly correct, but creating greater inflation doesnt go hand in hand with falling markets. Additionally, there is probably some general consensus that falling markets will add to the ranks of discontent. With the way that TPTB operate, I dont see things unfolding any other way.

    • cb says:

      They are right about one thing. The FED is corrupt.

      What part of their thesis wrong?

    • A says:

      Normal brain: stocks just go up

      Smart brain: stocks values are fake and based on the whims of the central bank, maybe we should just cash out and keep our money

      Genius brain: money is fake and is also based on the whims of the central bank!

      Galaxy brain: the central bank controls everything and only cares that stocks to go up, so stocks just go up

      • wkevinw says:

        A: Short term (voting machine/sentiment) vs. long term (weighing machine/financial fundamentals).

        The long term is MUCH longer than most people understand. Sometimes it’s truly decades. Usually, within a decade, the markets touch their “true” value or lower a few times at least. Some decades, prices stay below their true value, e.g. the ’30’s, maybe the ’70’s and 80’s, for example.

        • wkevinw says:

          “For periods of less than 10 years, the market sentiment driver accounts for around 75% of the price change in the market, while overall earnings growth is much less significant.”

          https://www.scribd.com/document/139490146/Pfaffvdvsd

        • sunny129 says:

          Not in the era of ALGOs trading unlike any time in mkt history!
          Keep looking the VIX level!

          Wonder why Flash crash occur?
          Covid 19 is big game changer and a variable UNLIKE any in the past!

          Just look at the Tourist and hospitality industry – airlines, cruiselines, hotels, airnb, vacation resorts, ++ All decimated!

    • SiT23 says:

      The old saying; the market can stay irrational for longer than you can afford.
      Update; the market can stay corrupt for longer than the shorters can afford.

    • RightNYer says:

      The mistake these people are making is assuming that the Fed has to ability to stop stocks from crashing. No. The Fed can’t control this. All it can do is jawbone, and when the jawboning ceases to be effective, the market crashes.

      The other mistake is assuming that the Fed cares about stock owners generally. To the extent that it serves its corporate masters, once they sell off their position, they are indifferent to it crashing.

      • Noelck says:

        I really think this crash is going to start in the bond market and that is what the Fed is trying to control.

    • rhodium says:

      It’s not a bad premise really. They forget the possibility of the fed being even more corrupt and eventually encouraging a market crash that spooks these same “investors” to sell too low too late while the money ballers scoop up the assets at a bargain. As long as their buddies have the inside scoop, they will regardless make money whether the market is up or down.

      Also, it seems in the modern era there is increasingly more focus on utilizing market psychology to one’s benefit. I really really would not be surprised if there are large vested interests who at this point have sophisticated ai models that identify market psychology and they’ve already looked into ways of using large positions to create and pop bubbles. It’s already public knowledge that robinhood sells the trading data of its users in real time to hedge funds and such. How much would I bet they feed that straight into a bunch of algorithms to try to go bubble surfing on the way up and down? If you can engineer a bubble now, why wouldn’t they ride it with call options? Exactly, I think there’s a decent chance that’s what’s happening here.

    • sierra7 says:

      Joe:
      The Fed can lose:
      When the manure hits the fan this time it will be because most “consumers” will be without jobs and will not be able to support the Games being played on Wall Street! Major supply problems could ensue when transportation industry implodes sans employees to shuffle the load. Unless the bought and paid for legislators mandate UBI (Universal Basic Income) all will be lost.
      The system is set to crumble. The future is dark indeed!

    • Lou Mannheim says:

      I have been noodling for some time on this – how can the Fed engineer decades of massive asset price and debt inflation with low-ish consumer price inflation. The internet is one area, offshoring/automation is another. Is that it?

      • wkevinw says:

        Lou Mannheim- I believe we are already doing that and at the endgame. If offshoring and automation continue to drive down the mid-to-low wages, there will be a political action to “fix” it. It won’t be good for anybody.

        There are now several studies that conclude that automation can be managed (flexibility of workforce), so that offshoring is the chief cause of employment market problems. Here is just one example.

        https://journals.sagepub.com/doi/10.1177/0891242418807557

    • Billybob says:

      The part about Jerome being a criminal is spot on.

    • Dale says:

      It the stock market is allowed to crash, then real estate and bonds will follow closely behind.

      I believe that the Fed *will* perform the rescue if required, regardless of the long-term consequences (since they have repeatedly proven that to be the case).

      But I would love to be wrong.

  5. Michael Engel says:

    1) QQQ daily : Apr 21 low to the halftime low on June 15 // a parallel line from June 10 high.
    2) SPX Futures daily : Apr 17(H) to Apr 30 open // a parallel line
    from Apr 22 low.
    3) SPX Futures RSI line from Mar 23 to June 26 was breached, but now it’s
    turning higher.
    4) Next stop is Nov 25.

  6. Andrew says:

    Interesting research about the frenzied speculation in August, and the risky call options with Soft Bank, all delivered with a sense of drama. Good on ya’, Wolf!

  7. JK says:

    Next two months will be rocky. Every one will be glued to elections and markets will be erratic.

    If Trump wins, the market will go crazy-up!

    Regardless who wins, our debt will go crazy-up!

    Gold, silver, hard assets (paid off) and Bitcoin. If you got a shack in Red country or out of country, you’re hecka lot better than me!

    • MCH says:

      If only it ends in two months, I doubt we will be that lucky. It will be endless debate regardless of what happens. I am going to assume down because I don’t think we will have clarity in two months, we are going to get more chaos.

  8. Macro Investor says:

    Yawn. A 2-day selloff from overbought levels. Most likely just profit taking before the holiday weekend. And notice it was stopped by the spx march highs.

    Despite my handle I am a former trader who still notices these things. There doesn’t always have to be a deep dark conspiracy.

    • John Taylor says:

      My gut feeling is an up move over the next two weeks as well. Could easily be wrong though. My most risky position is silver at the moment, and I’ll probably sell off my SLV calls if it does melt up a bit. I might sell covered calls on my gold miners and SLV stock as well.

      In October we should see the nearly 300k temp workers from the census as well as the post-PPP layoffs in airlines reflected in the unemployment numbers. Combine that with the pre-election frenzy of emotional ads and fears of the other team winning… I don’t want to hold too much risk by the end of September.

      If I’m right, I’ll probably exit my puts in IWM and EEM just before the election, and stick with long only for the most part after that … primarily in precious metals, but maybe with a few other things as well. I’m tempted to follow Mark Cohotes into his overstock and camping world trades a little bit if this pre-election selling thesis pans out.

    • Shane says:

      Macro Investor has a pragmatic point that seems right.

      I think it’s probably a lot harder for pros to rig this financial game than it is for amateurs to come up with conspiracy theories of how it is rigged. The fact is, professionals are called that because they are better at what they do than amateurs are. You enter into zero sum, short duration trades with the pros at your own peril. Serious traders don’t need to invent a global criminal conspiracy to reliably and steadily take money from the Robinhood hobbyists.

      If people want to make reliable returns from a market they believe has long term positive prospects, there are plenty of professionally-run mutual funds to buy. Or wiser yet, just buy a low expense index fund and get on with your life while it works for you.

    • Louie Azzolini says:

      Agreed. Some large positions changed hands. The selling was measured but consistent with few deep sell-throughs; so who ever was selling was selling into depth at price to get out of positions fast, but not throwing money away.

    • MarkB says:

      Lol profit taking.

      All the robinhooders and institutional investors in the world combined couldn’t profit-take 200pts out of the spx in 2 days.

      There’s no need for conspiracy when the thieves are being completely transparent about their thievery.

  9. DR DOOM says:

    There is always a new and improved version of screwing the pooch. I am setting on a lot of Sqqq. I hope I am not the pooch.

  10. Paulo says:

    Michael,

    What I take away from your comment is how absolutely fast events can unfold, and how unforeseen everything is…even with hindsight. :-)

    Who knows how this will end? ‘All in’ like the mentioned young up above, 10% on the table overnight but no more, or an acceptance there is no way to get ahead for regular folks moving forward.

    Tomorrow is Labour Day and I am listening to folk music labour songs on Sirius as I write this. This time is as bleak as I can remember for working people. I always go with what my mom used to say about the dreaded Russian ‘commies’ when she was still living. “One hundred years ago they were bought and sold with the land, no wonder they hate entrenched capitalism”. I believe a day of reckoning is looming and our social inequities will be paid for with unrest and upheaval. This recent roaring stock market doesn’t mean much for those in a food bank line, or undergoing an eviction and/or redundancy. Portland is a warm up, imho.

    I wish RD was still around commenting. He would remind us to keep our freezers full and plant a garden, incur no debt, and move to a safe haven.

    When the market tanks we can start anew. Until then many will continue to believe it reflects wealth and well being.

    But don’t mind me, I had a few rye on ice with my salmon dinner tonight. Completely Canadian, eh?

    regards

  11. Glass half empty says:

    I’m long Apple and telecom carriers. Why? Notice the videos of all the rioting going….EVERYONE is carrying phones shooting their personal virtue signalling selfies. The rioting will get worse and more widespread as time progresses.
    Divide & Conquer working perfectly to bring us together as one.

  12. Tonymike says:

    Yes, better under western hegemony that has done oh so much to impoverish the world, all for the oligarchs under the austerity pogroms. At least the Chinese have raised 850 million people out of abject poverty. You can verify this at the World Bank website.

  13. Sandy Toes says:

    Understand the frustration and agree with perspectives of many.
    Given that, where do we invest now to protect our egg nest

    • 2banana says:

      Well, first define “invest.”

      It used to mean putting your money into something, that you fully understood, that is cash flow positive and you had a solid plan to get all your money out after a certain amount of time.

      Speculating and gambling are not investments. The greater fool theory is not a plan of getting your money back.

    • Jackstone says:

      “where do we invest now to protect our egg nest”

      If you really want to protect it, put it in cash and wait for things to settle. The possible small loss from any rise you miss will be more than offset by avoiding the losses that you could be exposed to.

    • Mark says:

      Guns and canned food, I guess…

  14. Sandy Toes says:

    Understand the frustration and agree with perspectives of many.
    Given that, where do we invest now to protect our egg nest

    • No Expert says:

      Spend it on something that makes you happy?

      • phusg says:

        Could we also get a reply from an expert?

        • There are plenty of capital preservation strategies. Any one of them, or a combination thereof should do about as well. There are funds dedicated to capital preservation strategies. The criteria if you fit one of these is usually age and income. Are you vulnerable to high inflation? That is probably the first item on the checklist.

        • No Expert says:

          Keep it in cash and wear the x% you’re gunna lose and be happy you have anything at all. /Dunno.

    • Lee says:

      Get a hobby that gives you a ‘return’ on your investment.

      There are a lot of them out there. One of mine is gardening

      Learn to grow your own food or at least a part of it. It isn’t to hard to grow spuds, peas, beans, or other things. Doesn’t cost much and the return is huge. However, given that a lot of people are plain ole lazy and can’t even be bothred to keep their yards neat and clean……….

      Plant some fruit trees for future harvests. Yes, it takes a several years, but once they start producing you get fresh, clean, and delicious fruit. Nothing better than picking it and eating it right away.

  15. Optimist_Tim says:

    Market makers might hedge the calls they sold by purchasing enough shares to cover the delta, continuing to purchase as the price rises. Another source of option sales is people selling covered calls to increase the yield on their portfolios, which doesn’t really boost share prices.

    Some brokers will also provide a service where they lend out your shares for short sales by others and you get a fee (0.75% or more) for this, plus receive any dividends and still have the ability to write calls against those “loaned out” shares.

    I disagree with MF blaming front running for making it difficult to invest. Use limit orders, don’t trade during fast markets, avoid the open and take your time.

    I used to buy shares in 1990 when I was making under $10 an hour. 100 shares could cost you $40 commission at a discount broker and $200 at a full service broker. Or we could complain about inflation and how now, you pay a one cent tax to the high frequency traders and nothing (explicitly) to the broker who is reimbursed by the HFT firm, vs. 4 to 20 cents back then.

    • Mark says:

      If they had put a tiny tax on all the trading by algos and robinhoodies these past few months the national debt would have been paid off by now…

      Just for some market sanity, it might be a good thing and make it a little less of a high speed casino.

      • elkern says:

        YES. Current system is close to friction-less, which creates a tendency toward heterostasis. Adding friction to the system – small extra cost for each transaction – would counteract that.

        • RightNYer says:

          Agreed. I don’t think society benefits from HFTs buying shares in TSLA at 2:04 p.m. intending to unload them at 2:36 p.m. The capital markets were intended to efficiently allocate capital to worthwhile companies. What we have right now is not that.

        • Lee says:

          “………..HFTs buying shares in TSLA at 2:04 p.m. intending to unload them at 2:36 p.m”

          Don’t you mean buying them at 2:04pm and unloading them at 2:04:05 pm or quicker.

          A HFT doesn’t take place over a span of 32 minutes, but rather seconds of even micoseconds.

        • RightNYer says:

          LOL, I was being charitable, but yes, you’re right

      • flashlight joe says:

        “Just for some market sanity, it might be a good thing and make it a little less of a high speed casino.”

        It is my opinion that the casino should be across the street where betting on stock market numbers will not affect the financial system.

  16. Raymond Rogers says:

    Very good and interesting piece Wolf. I suspect the “gamma unwind” talk is overcomplicated language to say what you covered within.

  17. Here It Comes says:

    I posted about 2 months ago when wolf said he was shorting SPY that he was too early. Now is a good time to start, but don’t expect a crash. We aren’t going back to March. It’s likely we head down to maybe 3000 by the end of the month, then rally toward the election back to 3300-3400, then another “crash” to about 2800 or so. Whipsaw city.

    But at that point everyone needs to go all in. We will be heading into a 2-3 year rally that will be frightening in its size. SPX of 6000. It sounds CRAZY but that’s the likely top in a few years.

    Then, lookout. The crash we had in March will look like the “good old days”. Something really bad is coming, all the great thinks Wolf reports on will come to roost. But not yet – we will go through a massive blow off top rally first, then it’s likely 15 years of correction in some form of Great Depression like event.

    • Old School says:

      As Warren Buffet says, he doesn’t know what the stock market price is going to be next week, next month or next year. You are probably fooling yourself if you think you do. Only rational thing you can know about stock market in my opinion is over the next 10 or 20 years are you likely to get an acceptable return and that is primarily determined by the current price you are paying.

      • Lisa_Hooker says:

        @OS – I fear that projecting an acceptable return over the next 10-20 years considering the current market does not account for the coming number of bankruptcies with consequent total loss of equity. Recall that during and after the GD it took 20 years to just break even. There’s gotta be a better way. I wish I knew what it was.

        • TonTon says:

          That 25 years or so that it took to break even is a nominal value also. It doesn’t account for inflation.

        • Old School says:

          That’s why I am basically out of market. If you can’t pencil out you are going to get at least a 6% real return in the stock market over a 10 or 20 year period, the risk isn’t worth taking. I had rather sit in short term safe investments and wait for an entry point that makes sense. But that is value style investing. That’s only my style and I don’t fault anyone else.

          Many styles work. I still think biggest mistake investors including myself make is changing investing styles because yours goes out of favor. Right now SP500 indexing is in. Momentum is in. Large Cap Tech in. At some time it will be value,international and small caps.

        • roddy6667 says:

          The market went up over 10% a year from 1985 to 2015, but the average investor made just 3.66 % in this period. Adjusted for inflation, it’s less than that.

        • Lee says:

          Look at companies in Japan…………………………forget the USA.

        • sunny129 says:

          @roddy6667
          ‘The market went up over 10% a year from 1985 to 2015, but the average investor made just 3.66 % in this period. Adjusted for inflation, it’s less than that’

          NOT, if one has gone (mostly) out of the mkts when the mkt reached nose bleed level- gradually, increash cash positions and re-renter gradually after bear rout with value averaging!
          (been in the mkt since ’82. retired in 2005 and still up >600% of my original invest after 3 bears including ’87 crash!)) Option traders don’t fear BEAR mkt. Made more $ during GFC than the bull mkt before.

          2008 bust was just a child’s play!
          Reversion to the mean cannot be banned for ever. Below 45y corwd has never gone a secular BEAR in their life time and think Stocks go up only one way. Rude awakening ahead!

    • nick kelly says:

      Two quotes about market timing:

      In the run up in the South Sea Bubble Isaac Newton doubled his money. Then he went ‘all in’ and got wiped out. His quote: ‘I knew it would come, but didn’t think it would come like a thief in the night’ ( as in fast, overnight)

      Next from Soros partner Druckenmuller ( sp?) at the top of the dotcom bubble: ‘All week I’d been saying ‘don’t do it, don’t do it.’
      But I wanted to play, so I picked up the phone and bought 6 billion of
      internet shares. I was hours ahead of the top. I lost 3 billion and parted with Soros’
      ( He must have worked his way back up )

      Announcements about market timing, which is driven by psychology, are like predicting whether hemlines will be up or down next year, or whether rap will outsell country. Fundamentals will assert themselves but only when they are perceived as such.

      PS: Soros partner is no dummy and Newton has a reputation.

  18. andy says:

    I was waiting for Nasdaq 12K, give or take, based on the ratio to sp500 going into 2000 bubble. Very similar run-ups in both cases the last few months.
    There is remote possibilty it’s not done yet.

    • andy says:

      Was not one bit surprised by VIX moving up as market went up. Demand for puts went up as momentum accelerated in the last 3-4 weeks. VIX tried to break 24-36 few times actually. Everyone was loading up on puts there at the end.

      • MarMar says:

        How does this jibe with the unusually high call-to-put ratio Wolf mentioned?

        • Wolf Richter says:

          MarMar,

          I think andy is talking about the very end just before the selloff: “loading up on puts there at the end.” But the issues I discussed leading up to the selloff were in July and August.

        • andy says:

          Calls buying kept VIX above 22 even as market advanced with great momentum (should’ve gone down to 12-14). Then puts buying pushed it thru 26 resistance.
          Puts generally affect VIX calculation more than calls, according to the guy who developed it.

        • sunny129 says:

          That ratio got significantly reversed at the end of last Friday!
          More fireworks on Tuesday?!

    • Old School says:

      I think it’s good to think about the economy and investments considering five scenarios. Extremely bad, bad, average, good and very good. In my mind the extremely bad scenario is that solving a debt problem with more debt didn’t work and we revisit last lows on SP500 of 666. My bad scenario is recession returns us to price to sales mean value which is about 1200. These two scenarios might not happen, but you have got stress test for them if you are not going to get wiped out.

      • Dano says:

        If you want a good debt discussion listed to the latest Macrovoices Podcast with Luke Gromen, or search out a current one anywhere with Russell Napier.

      • Tankster says:

        Reading the book “Freakonomics,” Dubner and Levitt told the tale of a grad student working the no demolished low income housing projects in Chicago. His question was “How does being Black and poor make you feel? The answers were” Very good. Somewhat good. Neither good nor bad. Somewhat bad and Very bad. He neglected to provide the most common answer by far, “F@ck You!” That’s the “market” we live in. No wonder the race is on to the bottom in trading costs. The market makers frontrun the retail orders, and make it go on steroids with $5 slices of stocks, and HFT the heck out of them.

      • andy says:

        The extremely bad scenario is when gold bugs are right. I mean really right.
        1200 sounds insane now, but I’m hopeful. Depending on how much dividend it still pays.

    • sunny129 says:

      Historicaly, Mr. Mkt NEVER accomodates the majority. If NOT, for Fed pouring 3 Trillions in late March, we would have been 50% or more down by now.

      In 2000 the Nadq lost nearly 90% in 22 months
      In 2008 S&P lost 60% in 18 months!
      This time it is different, right?

      The gang who brought us 2 boom-bust cycles TWICE, already in this century are still in charge of this 3rd largest ever, ‘everything’ bubble. It will have the SAME fate, NOT if but when! They are repeating the same – more debt to cure the ills of DEBT!
      Higher they go, harder they fall!
      No Nation in human history has prospered by spending debt on debt!
      But, but, this time it is different, right?

  19. lenert says:

    Bloomberg’s headline right now is calling it the “options-enhanced” stock market money machine.

  20. DanS86 says:

    They are gonna keep ginning the market until they can’t. The Fed is nothing but a crony enabler that has no sense.

  21. Lisa_Hooker says:

    The heck with holding equities for the long haul. Derivatives for everybody! Join the Party, the water “looks” deep enough for diving.

    • Old School says:

      I have heard the party isn’t over til a big institution blows up. Sounds like some are really rolling the dice. It would be a different world if there was a high tax on doing short term gambling and no tax on real long term capital investment.

      • Lisa_Hooker says:

        Interesting thought. A capital gains tax that reduces say 1% every year a security is held. Or perhaps 1/2%.

    • andy says:

      “Treat stock exchange as a cold shower. Quick in and out.” – Rothschilds family moto, allegedly.
      “Bet it on the ponies.” :)

  22. NY Geezer says:

    Here we go again. If something big broke, the Fed will bail them out. There is no risk for the big players.

    So, for example, if Softbank on expiration day is stuck with a $100 billion levered loss loss, the Fed will buy the losing position for what Softbank paid and transfer the loss once again to the US middle class taxpayer.

    Since the elite pay very little in taxes, the loss transfer is not to all taxpayers, just to the shrinking middle class.

    • Chillbro says:

      How much of that middle class is left? It seems we have the rich and their professional enablers v the peasants and the proles, except American peasants don’t seem to understand their position. We got some funny results.

    • joe2 says:

      Patience Geezer. The black swan is local government authorized and sponsored city riots that will decimate productivity and unmask the charade of free money chasing scarce resources. When Trump wins the election, the rush for safe investments given the expectation of enhanced rioting will be epic.

    • cb says:

      @ Wolf
      @ NY Geezer

      NY Geezer said: “So, for example, if Softbank on expiration day is stuck with a $100 billion levered loss loss, the Fed will buy the losing position for what Softbank paid and transfer the loss once again to the US middle class taxpayer.”
      __________________________________________

      Interesting thought. Can the FED really target specific purchases to save favored institutions or companies or individuals from losses?

      • Wolf Richter says:

        Fed doesn’t buy equities or options. Credit instruments only.

        • sunny129 says:

          Credit Mkt is the foundation upon which Equity Mkt is built.
          Hence no need to buy securities like BOJ, at least until now!

          Liquidity is constatly provided constant credit creation/infusion, with balance sheet gone up by 3 Trillions to over 7 Trillions.
          Does any one what’s the need for Fed to buy AAPL corporate bonds, MSFT++?

          There is no outrage or demand for accuntability. Federal Reserve has become 4th branch our Govt, without any control.

  23. Mark says:

    I wouldn’t be surprised if Trump and his Treasury using their Blackrock buddies and it’s football field sized supercomputing warehouses filled with quants and algos dribbling hidden trades are also in on this scam to juice the markets for re-election victory. There is close on two trillion in the TGA and the fools in congress gave him a huge campaign fund by way of the CARES Act with no checks and balances, little of which trickled down to where it needed to go and large amounts apparently still unspent. Moreover, unlike the hoodies and SoftBank, they don’t even care if they’re not in the money, it’s just election spending ultimately funded by the taxpayer. A bit like when Trump was bailed out by his dad when the last casino he was involved in went bust. Anyone know how to find out?

    There must also be an amazing short in all this somewhere for someone clever, like Soros did to England when the ERM blew up. Market manipulations end in crashes which can be highly profitable if positioned right.

  24. zillow millionaire says:

    I don’t think it’s sign of any thing.
    As long as we have CB’s, they will prop upthe stawks.

  25. joe2 says:

    Thanks Wolf. How do you keep honest when all is crumbling into corruption around you. I have another Don Quixote friend like you but he is usually in court getting sued by corporations for exposing fraud.

    • VintageVNvet says:

      Big Diff IMO, j2,
      DQ, an errant knight, was attacking windmills IIRC, Wolf is attacking only ignorance, and relying on public information from what I read here and elsewhere.
      Certainly one must tread lightly if and when attacking, as opposed to focusing, communicating more clearly, and possibly demonstrating basic logic and lack there of regarding whatever information is offered freely.
      The ”OLDE” tale/analogy/way to differentiate might be that you can walk up to a ship at the dock and kick it and you will hurt your foot, but if you lean against it for a while, you can move the ship without harm. (Assuming no wind or tide is against you.)

  26. Crush the Peasants says:

    I can understand exiting equities and keeping your money safe in very low yielding instruments. But your egg will be nibbled on by the inflation mice. Market timing the stock market or home market is not as easy as it might sounds, and the time interval to retirement for everyone gets shorter and shorter.

    Compare exiting the Dow at 19,000 and sitting it out, versus having stayed in to ride the Dow to over 28,000. Even a 25% drop from there still leaves you ahead. Personal decision, to be sure, based on risk tolerance and personal circumstances.

  27. When a call option goes in the money the buyer can take possession. Large buyers pushing prices around in order to exercise calls underlines the scarcity of stock shares. This is what got Buffett off his cash position. A jump in interest rates tomorrow will not affect liquidity. The shorts will go the way of the bond vigilantes.

    • sunny129 says:

      ‘A jump in interest rates tomorrow will not affect liquidity’
      ??
      Will affect shaky Corp credit mkt and rate of financing the deficit and increasing DEBT!
      Fed has to roll over over FIBE Trillions of Treasuries in the next 12 months.
      Wait & Watch!

      Covid will not go away.
      50% or more Businesses who have been shut down will not be coming back.
      The revenue collected for Govt by August less than spent this year!
      More ugliness of reality ahead!

  28. Young says:

    $5 slice of AMZN pushed by the likes of Fidelity and Schwab is akin to introducing penny slot machines to the trading platforms.

    It is like if I invest a latte a day I will be the next Bezos in about a thousand years.

    Whales in search of planktons in shallow waters (markets)…

  29. David Hall says:

    In July US News & World Report predicted a 3.7 trillion dollar fiscal 2020 deficit. With Trump’s payroll tax cuts that number is expected to rise.

    • sunny129 says:

      Does any one in Congress, any of the presidential candidates care for increasing deficit or the DEBT?
      NONE!

      Every one believes MMT ( More money Today with more debt!) will solve everything!

  30. sunny129 says:

    Investment banks acting as HEDGE FUNDS!

    Fed has encouraged ANIMAL spirits by arteficially keeping the price capital REDICULOUSLY low by historic standards! They want every one including grand Pa & Ma into the mkts! Insanity regining!

    Longterm investing has been replaced by speculation again thanks to Fed’s policies since ’09!

    Economy cannot grow by spending debt on debt, increase in M2 is being followed by decreasing velocity ( increase in deficit and debt!) since 2000!

    Fed is running AMOK! They are behind all the distortions and the politicians, Congress and Wall St are complicit and benefitting at the cost of the bottom 80-90!
    Top 0.1% own more than bottom 80%! Go Figure!

  31. Daniel says:

    I don’t believe that’s true. People that have been holding stocks for a long time, weathered the virus crash and held. Well, it’s gone up, up, up since then and seemingly peaked. They just cashed out it all they did and bought right after it dropped. They’ve learned how to play the game. Buy low, if it won’t go low, make it go low and take some cash for yourself. When it hit’s your target low, get right back in. Kind of like day trading for the masses only for higher stakes.

  32. Petunia says:

    In my mind what’s going on is not hard to figure out. In 2008 the fed gave all the banks money to obscure and save the most vulnerable ones.

    I think the same thing is going on with what Wolf calls the Giant 5. One of them is vulnerable and will take down the entire tech sector if it craters. So the market is using the options market to keep them all levitating. Letting one of them fall will bring down the rest. And the pain won’t stop at just the Giant 5.

    I’m surprised nobody has mentioned the threatened anti trust investigation by the just us dept against google.

    • Mira says:

      Maybe they are all worthy of a fall ??
      Money needs to be invested in reality.
      Maybe there are new options on the horizon waiting to come into play.
      Being held back.
      New & bigger & better & more useful things .. that may never see the light of day, because the now stuff is being monopolised / swaddled in cotton wool.
      When a thing breaks I morn its passing & try to save it ..
      When I should throw it in the bin & buy a new one.

    • The serious threat to the Five is their classification as “Tech” companies. They are more likely to be labeled “Media” companies, which come under different rules, FCC oversight, and certainly different valuation models. The move to censor hate speech is the obvious example. Are they going to allow a media company to issue a crypto currency (Libra)? There are also the monopoly interests you allude to. DOJ is a political hatchet job on anti-hate speech, the real question about their business models will come later.

  33. Henry Ford says:

    Raveling miracles? Not sure what that means, but it fits with this market for sure, where nothing makes sense.

  34. MonkeyBusiness says:

    Don’t worry guys. Tomorrow morning there will be another “the vaccine is near” induced rally. The establishment knows how much the market loves that trope.

    Here’s how the establishment can boost markets without spending a dollar:
    1. Monday morning. Vaccine news by someone in the industry.
    2. Tuesday morning. New trade deal involving the Chinese. More “winning” basically. Forget the most recent deficit, that’s just details.
    3. Wednesday morning. Vaccine news by the esteemed Dr Fauci.
    4. Thursday morning. Stimulus news. “We are really close” per someone in Congress.
    5. Friday morning. Jeremy Powell special. “0% for the next 500 years”

  35. Mira says:

    What do I know .. for real .. okay.

    ‘Ops !!
    ‘Why did I sell that
    ‘No, no, no
    ‘Buy it back
    ‘Yes, yes, buy it back
    ‘It’s gone up .. oh god no
    ‘Buy it back .. look .. it’s still going up .. again
    ‘Hurry, buy, buy

    Why ??
    Because it is THE stock to have
    The only stock to have
    Be in the game .. this game .. the only correct game in town
    Left out is what I am
    #%&^ing left out man !!

    Surely, when spending money, one looks to purchase within their price range
    & even more surely, there is an unlimited supply of stocks to choose from
    & even, new & up & coming stuff ??

    This is akin to garbing everything you can lay your hands on at a clothing store SALE
    Man .. that dress will never fit you
    It is shopping for land fill.

  36. MonkeyBusiness says:

    Darn, I am wrong, Elon Musk has gone cold.

  37. MonkeyBusiness says:

    Oh man, now they are saying that someone in the UK experienced an adverse affect after taking the Astra Zeneca Covid vaccine during Phase 3 trials.

    Tomorrow, the market will plunge some more guaranteed.

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