Friday, October 30, 2020

Markets: What Changed On August 27?

While not agreeing with all of Mr. Snider's conclusions, he makes some very interesting observations.

 From Alhambra Investments, October 28:

What’s Going On, And Why Late August?

This isn’t about COVID. It’s been building since the end of August, a shift in mood, perception, and reality that began turning things several months before even then. With markets fickle yet again, a lot today, what’s going on here?

What you’ll hear or have already heard is something about Europe and more lockdowns, fears about a second wave of the pandemic. No, that doesn’t fit the herdlike change in direction you can observe across many different markets (below). More so when as much as what.

“When” had been late August – the 26th, to be precise. And this was actually the second inflection, beginning on August 27, the first one tracing back all the way to June 5 when nobody, I mean nobody, was thinking about more COVID. In early June, the sky was the limit, not reinfected case counts.

In between June 5 and August 26 (around the end of July), the oil markets had built up more crazy contango. Crazy because, let’s face it, with somewhere around one-fifth of domestic supply taken down it simply boggles the mind how backwardation (which would’ve equaled balanced fundamental factors) remained so elusive.

Something was not adding up, a big problem that could only have been about gross economic demand. The “V” wasn’t showing up.

Not only that, even the DOLLAR CRASH!!!! got called off. After sinking pulled lower by mostly the euro (which doesn’t matter, but that’s a separate story), suddenly the dollar, at least DXY, wasn’t feeding the flood myth any longer.

In other words, practically everything changed – for the intermediate term – starting at August 27.

The trajectory here is really easy to put together. From middle April to June 5, solidly positive all throughout. Even the bond market was relatively more reflation-y (though never much) during this period. Rebound, reopening, and the promise of gigantic positive numbers to potentially more than balance out the huge contraction opened up (unnecessarily) during February and March (with its big assist from the equally unnecessary GFC2).

Nagging negatives, however, these began to create doubts because they were never properly explained and answered. Maybe it wasn’t so easy. Again, economy not disease. Turning everything off like was done, bumping up the already-wary liquidity and money disease lingering in the global economy still since the first GFC a dozen years before, perhaps things might not go so smoothly after all.

A lot was riding on “stimulus”, especially of the monetary variety. While the US federal government and others around the world were hugely involved in shoveling cash where possible, such aid was less “stimulus” than what we’re told to expect from the Federal Reserve’s big, enormous, huge “flood” of “money printing.”...MUCH MORE

 The first peak on our Grand Teton-like chart is the all-time high, September 2. More to come.