Ask a stupid question... I guess I was asking how you can be net short the US while the numbers are still melting up.
I trade the fundamentals, markets move on sentiment until they don't, so eventually, markets will gravitate towards the fundamentals. Fundamentals tell me that US markets are overbought, bearing a bit of pain while I wait for markets to go to fair value is worth the eventual rewards. If you can understand what the graph on this post Trading the Indices on Fundamentals is telling you, then you'll know what I mean by "markets move on sentiment until they don't" If I replace the "how can" in your question by "why" then this is the answer: Sentiment is an unquantifiable quantity that changes day by day and in unscientific ways like a headline or, as Medallion measures, gloomy days are likely to depress sentiment. Fundamentals can be measured and therefore less risk is involved in trading the fundamentals, although more patience is required.
Did you ever read the James B. Rogers, Jr. interview in Market Wizards? I think you would have enjoyed that one. It seems to gel well with your style and your views, except that his holding periods seems to generally be far longer.
Those that believe a trade deal is all that's needed to end recession talk and see a 30k DOW really needs to look beyond trade... Trump did start a new front threatening economic growth with tariffs, this may or may not get resolved by Dec 15th, but the front that Bill Gross warned us about since the GFC recovery is still lurking. Gross repeatedly warned Yellin that holding rates low despite a recovery was creating a credit bubble. Powell tried to address Yellin's failure but scared the crap out of business with his intended "auto-pilot" fix. Powell was in any case too late as keeping rates low long after the 2008 recovery meant that corporations had borrowed at low interest, accumulated debt far exceeding what earning can repay, much of that debt was used to buy back their own stock increasing their own stock prices. Big corporations now have huge debts, high stock prices and large "manufactured" capitalization. The credit bubble created dwarfs the previous episodes described by Greenspan as “irrational exuberance.” Any attempt to normalize rates will trigger a massive stock sell-off, any slight reduction is earning will have the same effect. In a nutshell, the Fed has screwed up again. The US economy is caught between a rock and hard place purely held up by expanding consumer spending, its only saviour is continuing rapid expansion, but as we already know, the expansion is slowing, failure to reach a trade deal will accelerate the contraction but, as said, trade is not the only factor. It's just a matter of time before the kindling point is reached and there is no way out.... corporations will sell stock to reduce debt to a level that can be serviced by earnings, and, stock prices will fall most probably in a snow-ball fashion. One must realize that CEOs are no fools, they'll take immediate advantage of any screw-up by the Fed or the administration, profit from it then reverse course just as quickly when they need to. Preservation of the species is at play, outsiders that don't see the writing on the wall become collateral damage caused by friendly fire. Despite the pain of being short during a 10+% rally in November, I remain short US and Long EU.
All true but the floor is low rates. As trump said negative interest rates are desirable for the US government. This means at least two more years of even lower rates. I don't see this part of the equation changing for any reason. So you're (probably) in for two more years of 10% gains
Trump and his advisor Kudlow have no idea how economies work, they don't see beyond the stock market... "low rates=high markets so the economy must be good" they say, but history says different. There are 2 examples of what sustained low/negative rates do: a) Japan 20 years of stagnant growth after a 70% fall in the stock market, EU in its 5th year of the same after a 50% fall in stocks. Negative rates and nonperforming loans have the Japanese and European banking systems on their knees, if the US does not learn from the mistake of others, they'll be joining them. You might well be right on another 2 years of bull market, but the longer this goes on the harder will be the fall.
So do you see them learning from others mistakes or not? I see them pushing it to the brink and maybe not going over. Which will take two more years imo
Not in that way... Powell is an idiot, hasn't a clue on what to do, hasn't a clue on how to analyse data but has a big ego, the more Trump pushes him to cut, the more he will resist and likely to give Trump the finger by raising, unprofessional and no the way to run the Fed but that's what you get when unqualified individuals are given power... saying no pumps the ego by showing they are in charge. Six days to go before Trump has to show whether he's a strongman or a wimp, he might do this: The 2 most powerful men in the world are making decisions on impulse, personal beliefs and ego.... if things end well it's only because their ego-driven decision happens to coincide with the right thing to do. Tariffs were what caused the great depression, perhaps someone should sit tariff-man down and teach him history and diplomacy.