Princess Gwen here, and I am Bored, Bored, Bored. What is a Princess supposed to do while waiting for a market to do something interesting? One can only go to so many parties. Eventually a girl wants some market action.
Back in January, I said the Nasdaq (and by extension, all markets) would trade sideways for a good long while, as we wait to see what ugly thing pops out of the economy next. Until the Nasdaq makes a higher high, it's moving sideways. Actually, I wouldn't rule out a new higher high. MACD on the weekly is still moving up, with no sign of flattening. This bounce, while impressive, to me is a sign of volatility . I won't trade in a market like this.
In the spate of market boredom, I started reading actual financial news, and came across many interesting things. I saw a statistic that between 10-20% of trading on any given day is due to stock buybacks. I also read that before 1983, buybacks were illegal, and considered a form of market manipulation. Looking at that massive, endless bounce since January, I started to wonder how much of it was due to stock buybacks. I mean, it's odd to see a formation that just goes up like that.
I also read that Pensions in the US are drastically underfunded, and also that they tend to hold about 50% equities at the moment. Pensions expect a return of 7-8% annually, and the magic of pension fund managers has made it happen. So, what happens when the market goes down? If the pensions are underfunded now, any kind of market correction will only make it worse. Is there some point, like where the fund reaches 30% of necessary funds, where they just give up? The unfunded liability right now is something like 5 Trillion dollars. (With a T.) And that's after a ten-year bull market. Nobody talks about this, I suspect, because it is an unsolvable problem. I think it's easier to just treat pensions like magical unicorns that have no flaws. It'll all be fine.
But holy smokes, if anything goes wrong? When I get bored, I try to figure out which parts of the economy are built on paper mache. Corporate bonds, obviously. So many of them are hovering just above junk bond status. The housing market? How much of that sweet, sweet QE money ended up in real estate? Is real estate the piggy bank of last resort? I suspect a lot of smaller companies that don't provide any real service will fail, and nobody will know. The real question is how the big companies will do. If profits have passed their peak, and the global economic slowdown is upon us, who will still be able to see a profit? I don't mean now, in the zombie-market, where it's still moving forward on essentially nothing. But two years from now, which companies will go bankrupt, that we never thought we'd see? Right now I just keep an eye out for news that big companies have unexpectedly low profits. Like Kraft-Heinz, or Samsung. It's like corporate Bingo, I'm just filling out my recession Bingo card, and my dobber just marked Samsung. How much of our economy is built on nothing but shadows?
The outlook is so dire that I am actually trying to enjoy the last gasp of the bull market before that horrible rattling clank we heard in December comes back as an even bigger clank, followed by a lot of smoke billowing out under the hood. Until then, enjoy the fact that we're still moving forward.
Back in January, I said the Nasdaq (and by extension, all markets) would trade sideways for a good long while, as we wait to see what ugly thing pops out of the economy next. Until the Nasdaq makes a higher high, it's moving sideways. Actually, I wouldn't rule out a new higher high. MACD on the weekly is still moving up, with no sign of flattening. This bounce, while impressive, to me is a sign of volatility . I won't trade in a market like this.
In the spate of market boredom, I started reading actual financial news, and came across many interesting things. I saw a statistic that between 10-20% of trading on any given day is due to stock buybacks. I also read that before 1983, buybacks were illegal, and considered a form of market manipulation. Looking at that massive, endless bounce since January, I started to wonder how much of it was due to stock buybacks. I mean, it's odd to see a formation that just goes up like that.
I also read that Pensions in the US are drastically underfunded, and also that they tend to hold about 50% equities at the moment. Pensions expect a return of 7-8% annually, and the magic of pension fund managers has made it happen. So, what happens when the market goes down? If the pensions are underfunded now, any kind of market correction will only make it worse. Is there some point, like where the fund reaches 30% of necessary funds, where they just give up? The unfunded liability right now is something like 5 Trillion dollars. (With a T.) And that's after a ten-year bull market. Nobody talks about this, I suspect, because it is an unsolvable problem. I think it's easier to just treat pensions like magical unicorns that have no flaws. It'll all be fine.
But holy smokes, if anything goes wrong? When I get bored, I try to figure out which parts of the economy are built on paper mache. Corporate bonds, obviously. So many of them are hovering just above junk bond status. The housing market? How much of that sweet, sweet QE money ended up in real estate? Is real estate the piggy bank of last resort? I suspect a lot of smaller companies that don't provide any real service will fail, and nobody will know. The real question is how the big companies will do. If profits have passed their peak, and the global economic slowdown is upon us, who will still be able to see a profit? I don't mean now, in the zombie-market, where it's still moving forward on essentially nothing. But two years from now, which companies will go bankrupt, that we never thought we'd see? Right now I just keep an eye out for news that big companies have unexpectedly low profits. Like Kraft-Heinz, or Samsung. It's like corporate Bingo, I'm just filling out my recession Bingo card, and my dobber just marked Samsung. How much of our economy is built on nothing but shadows?
The outlook is so dire that I am actually trying to enjoy the last gasp of the bull market before that horrible rattling clank we heard in December comes back as an even bigger clank, followed by a lot of smoke billowing out under the hood. Until then, enjoy the fact that we're still moving forward.