Investing Is Dead

We now effectively all live in a central bank dominated world – nothing else seems to matter anymore. A record drop in Chinese GDP, initial unemployment claims pushing through the roof, earnings disappointments galore, a worldwide viral epidemic that is expected to depress the global economy for months or even years to come – I could go on and on. And how did equity markets respond?

Quite predictably actually – by pushing higher, extending an already massive rally that began about a month ago when the Fed announced unlimited QE and manna from heaven for everyone.

Word on the street has it that the Fed hired Blackrock to handle several rounds of purchases of junk. Yes – as in JNK – which more than explains the 10% jump over the past week.

As we have learned the hard way over the past decade – fundamentals are and should be meaningless to investors when the Federal Fed is pumping free money at unprecedented levels. We are now pushing across the $6 Trillion mark which fortunately is a number beyond everyone’s imagination.

I said fortunately because if people really truly understood the magnitude of what is happening all major cities would be on fire within a matter of one day. Let me try to throw some kindling on whatever flame of rationality that may still remain:

• 1 U.S. Dollar has a length of 6.14 inches – let’s call it half a foot.
• 1 mile = 5280 feet.
• That means ~$10,500 in $1 bills come out to about 1 mile.
• The distance to the planet Mars is 140,000,000 miles.
• Which means it would take about $1.5 Trillion in $1 bills to span the distance between earth and Mars.

Now we’ve thus far printed $6.5 Trillion which represents roughly 2 round trips to Mars and back. Call it the Fed’s 21st century space program. The good news is that it really doesn’t matter given the Dollar’s reserve currency status, which is a statement that may catch you by surprise.

The reason why it doesn’t matter is that there appears to be a systemic dearth of U.S. Dollars worldwide due to the existence of an exotic beast called the Eurodollar. Someone please time travel back to 2009 and send me damn email. For more details on this very fascinating topic look no further than this excellent write up by Michael Every of Rabobank.

Of course there is no such thing as a free lunch and the long term implication here is that either the Fed in the end is going to own pretty much everything, and the planet will be run by banksters – or it all blows up in our faces and the U.S. Dollar gets destroyed in the process. Pick your poison. With a bit of luck COVID-19 has gotten to me by then leaving you suckers to mop up the carnage.

In the interim of course it pays to pay attention and to accumulate whatever currency is considered the most valuable/dependable. For better or for worse in the foreseeable future that is the U.S. Dollar.

Here’s an update the treasury yield front – I have highlighted the latest prints on the short term t-bill yield side as well as the latest prints on the longer term t-note and t-bill yields. As you can see everything remains flat as a pancake and while we are seeing a depression on the short term side the long term also continues to fall.

TLT roughly tracks the 20-year and as you can see it’s remained pretty flat over the past 4 weeks and managed to close inside its expected move every single time. The IV-Z score also seems to be bottoming out which tells me that we are most likely going to start seeing a jump here in the near future.

What makes me think that? Well, the answer brings me back to the title of this post, which is that investing as we know it – either on your own via fundamentals or some money manager – is effectively dead. In a Fed dominated market it’s the quants that really run the show and one of many ways they do it is via sector rotation. So let me present you with the five food groups:

• Tech

• Financials

• Energy

• Consumer Staples

• Precious Metals

We’ve already seen this phenomenon over the past few weeks and I expect it to continue as long as the VIX remains > the 30 mark. Let me present you with some evidence:

Remember when XLE was taking it up the rectum and I recommended looking into energy stocks and ETFs?  Well it’s jumped quite a bit over the past few weeks and after an early week sell off it once again popped by 10% on Friday.

Similar observation on financials, which got hammered early in the week post earnings (when anyone who was clever had cashed out) and then picked up steam again on Friday when the quants started buying again.

Meanwhile the ‘monsters of tech’ pushed up hard early in the week but then hit a snag on Friday while the SPX continued higher.

Speaking of which the E-Mini S&P futures are down in overnight trading but I do see the potential for a run toward the $3k mark. After that the going gets pretty tough and should we get there I would start looking for short positions.

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Head & Shoulder patterns are the few price based patterns I attribute any credence these days. Also – gold closed near its lower EM on the way down but almost doubled it on the way up. I’m grabbing a call ratio spread here to benefit from a possible explosion higher.