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more exuberance


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Read an interesting article on Yahoo finance which showed the majority of gains in the Nasdaq is down to the big 6 tech firms and without them there would have been no gain in the Nasdaq since 2016 and the majority of movement is down to the price of 6 companies. It would appear, in the search for dividend and profit everyone has opted to buy Amazon, Facebook, Apple, Alphabet, Microsoft and Netflix, as a herd reaction. No one has stopped to question whether they are over-bought at all, or if they may have questioned that premise, the thought would have been quickly cast asunder in the wake of evidence to the contrary (prices of the big 6 only bulldozing up). This may have lead to a false narrative, where we may consider everything is rosy in the garden of equities and everything  will all be alright soon, as long as the big 6 keep on growing, even if much other evidence suggests the contrary. Which it is. From employment to housing arrears, from relationships with allies and perceived foes to actual communal transmission of Covid 19. From stratospheric  Fed and govt debt to trade imbalance, from irrational exuberance to actually facing reality now. Instead of relentless optimism, relentless realism. 

It would appear we are in for another week of exuberance. The sun is shining, people are out enjoying themselves and one could be forgiven for thinking the crisis is over and we can all go back to doing exactly what we were doing before this inconvenience struck. Reassessment can be inconvenient too. No one likes to be wrong, (though we often are). Least of all the Potus, who's principle motivation may not be the well being and good health of his people, more the well being of the economy, more specifically the price of equity. He encourages more exuberance even when evidence may suggest otherwise. 

It is earnings season for equities, the reports, many of  which would make grim reading in more sober times, will be ignored for even the merest hint that the future will be brighter or it wont get any worse, from a reaction to Remdesivir (which appears to improve more than it harms, improves 9 harms 3...a litigation lawyers dream) to any glimmer of positive data.  Then one looks at the price of Tesla and realise the equity markets really have gone potty. Look at Tesla's numbers and its price makes no sense at all. Herd irrational exuberance in a nutshell. VW and Toyota p/e  far less than 10, now look at Tesla and you know its share price is on steroids and anything else the doctor will prescribe. 

I recently drove to the New Forest to visit a good friend. It is normally a patience sapping experience, but left on Friday 7 pm and arrived at 9;10 pm in record breaking totally unbelievable 2 hours 10 minutes. In July. Normally, it takes at least 3 hours. Roads are still quiet. Which leads me to question again the premise of a "V" shaped recovery  and consider whether those that suggested a "V" shaped recovery actually have very poor hand writing and their version of a V more closely resembles a flattish tick or even a very sloppy W.

I digress, the point being there has to come a time when the US has to take off its rose tinted glasses and see the reality of Now for what it is, rather than wishing it all away for a brighter tomorrow. Might not happen this week as equities push higher but you can't escape it forever. Can you?

 

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Depends on your big picture outlook - there's no denying the fundamentals are shot to bits - whether the market factors that in or not we will see.

For what its worth - my expectation has been that following the rally from March 2020 we'd top out and head sideways to downwards for 12-18 mths ish - see (not to scale) chart below created on 13th March 2020 - someone asked me my outlook, I showed them my expectation once the fall had finished its decent and started to rally (SP500 Index the chart is of)

Obviously the market does not have to conform to that outlook and I won't be waiting for it to happen, if it happens, it happens if it doesn't it doesn't

242.thumb.JPG.529994bb9086d5add2e052139fd7f935.JPG

 

 

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I like your interpretation of future possibilities. I don't think the Dow will recover to post crash highs anytime soon, maybe 2022. You have drawn a whipsaw. Not sure it will whipsaw quite as much but may trend negative to current highs for sometime yet. Sideways down. Bear in mind there is no shortage of money supply (markets are awash with it) enough to stem the tide for the meantime.  Devaluation of the USD$ may be a result and with it the desired increase (small) in inflation which will help with the deficit. Danger being stagflation and a moribund economy (eg. UK). In fact, re UK economy combination event of Covid and hard Brexit will almost certainly kipper UK GDP for years to come and cost the UK economy trillions to little or no measurable benefit (barring flag waving rights). Naturally, the unfortunate taxpayer will foot the bill again.

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