Category Archives: Twitter Tape

We’ve heard the language before. The belief being that an arbitrarily set parameter has triggered something. What has been triggered? We don’t really know since it hasn’t been defined. The lack of a specific claim is intentional since it leaves it open to any interpretation. When we look at the prior claims along the same lines, we can see why there is little in the way of what this rise in “passive money” really means.

From the above November 1997 article:

“While Wall Street paints 401(k) members as indifferent to short-term swings, the evidence of a few days in October suggests the opposite. They appear far more attuned to the ebbs and flows of the market than the experts realized.”

Likewise, the further you go back the more we see the same worry about new money entering the market.

This from Richard Russell’s Dow Theory Letters dated April 12, 1995:

“With stocks clearly overvalued, the funds move into the very liquid big-cap Dow type stocks (the “safe” stocks) and the Dow plows higher.”

What is implied by crossing “the Rubicon” is that a big crash is coming because dumb money is coming into the market regardless of values.

Welcome to the nature of markets for thousands of years. A Rubicon hasn’t been crossed, instead, we should expect more of the same from markets which is merely a reflection of human behavior.

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Posted in Bianco, dumb money, ETF, Index Funds, Twitter Tape

Twitter Tape: Raising Rates & QT

Posted on February 12, 2024 by nlo-admin | Leave a comment

It was mentioned that in order to save the banking system, it is necessary to raise interest rates.

“Either they raise rates rapidly to save the bond market — or they lose the whole banking system. This will become obvious and existential (soon)”

As we’ve noted in the past, the history of rising rates has been very good for markets under the right conditions. However, the real question is, how is it beneficial to have Quantitative tightening (QT) or a balance sheet unwind?

One of our favorite examples is found in the unwind of the Reconstruction Finance Corporation.

When the government gets out of the business of bailing out, the reverse of the “crowding out effect” takes place. As noted by us:

This is consistent with Dow Theory which says, when the government gets involved, they take away the risk portion of the market. This could mean that the market crashes due to government meddling. However, according to Dow Theory, it typically means that whatever the government got involved in will trade more like a government bond, flat to middling at best.

This concept of trading like a bond can best be seen in nationalization of railroads during the period 1918-1921. This is also seen in the performance of Fannie Mae.

In this case, the wild upside potential before government control in 2008 cannot and will not be seen after government control. This in spite of the fact that from the 2009 lows, Fannie Mae has jumped +600%. Again, contrast that with +6,000% move before 2005.

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Posted in Dow Theory, interest rates, QT, Quantitative tightening, Twitter Tape

Twitter Tape: Inflation Forecasts

Posted on February 12, 2024 by nlo-admin | 1 comment

The question is asked:

“What’s your CPI forecast for tomorrow?”

To answer this question, the context matters. There is little in the way of debate. As we’ve outlined since the beginning of the pandemic (February 25, 2020), inflation has a specific trajectory.

Nothing that we’ve seen, either for the stock market or inflation, has been inconsistent with the extensive history of Plagues or Pandemics.

Twitter Tape: Catch-Up Indexes

Posted on February 12, 2024 by nlo-admin | Leave a comment

Here is something that weighs on our mind:

Our experience says this is a warning, as accurately presented by Micheal A. Gayed. Our concern is that this only implies one scenario, the tech sector ultimately crashing as the other half already have.

An alternative prospect is that the lagging sectors skyrocket without the tech sector falling. This is typically a warning of a coming crash.

The rationale is that investors might follow the advice of Garzarelli and “Buy Catch-Up Indexes.” Investors typically buy these indexes because they have failed to be in the initial runup in the tech stocks. Seeing all the gains and missing out, they attempt to make up for lost time.

This was best represented by buyers of gold in Japan in January 1988.