We often say that if you're not 100% focused on your trading you are at a natural disadvantage to your counterparty. That would help explain why I'm trading less these days, but it's not just that. This is a tricky juncture for global markets after Mario Draghi officially jumped the shark this morning.
I don't know if this is the proverbial "last bullet," but I maintain that NIRP (negative interest rate policy) is a world away from ZIRP (zero interest rate policy), at least in terms of the potential to trigger unintended consequences. We've spoken about the plumbing of the markets; not only high-frequency trading (that's an entirely different dynamic) but the leverage, derivatives, and confidence that tie together the global financial machination; for a stock market at all-time highs, the fragility of the system has perhaps never been more understated.
These latest plot twists are a continuation of a manufactured "long squeeze" that has been manifesting since Y2K. It's a horror show for free-market enthusiasts; a never-ending saga of artificial stimuli intended to ward of The Phantom of Deflation. And while I would argue that the true counterparty of central banks is the Internet -- the most deflationary invention of all-time -- we mustn't ignore the battles won in this ongoing war. From buff corporate balance sheets to solid stock market charts, the bulls have been laughing all the way to the bank.
Which poses this question: Where do we go from here, both in terms of the societal infrastructure and the capital markets? I don't claim to know the answer, but I have my suspicions. Suffice to say that my short-term exposure is measured (I'm still long Twitter (NYSE:TWTR) from $29.99) while my longer-term antennae vibes the next secular trend. And while I have exposure to global markets (real estate, 401(k), 529s and so forth), my faith in the active fabrication of free-market capitalism has diminished in kind.
The VXO (INDEXCBOE:VXO) is trading with a 10-handle. In other words, we're there.
Weekly Investors Intelligence sentiment indicate that bulls are exceeding bears by more than 40%; market professionals are almost, if not already, fully invested.
- I've updated the Bloomberg Smart Money Index below; still a pretty wide chasm, which has traditionally reconciled to the downside.
- NDX (INDEXNASDAQ:NDX) 3740 is now underfoot (and has newfound support). That's 14-year highs for the four-letter freaks, for those keeping score at home. And RUT (INDEXRUSSELL:RUT) 1120, the 200-day moving average, is underfoot as well. Take that, Karl Marx!
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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