What do the following great investor minds, ranked in no particular order, have in common?
- Warren Buffet
- Jared Coffin
- Stanley Druckenmiller
- Rey Descalso
- Seth Klarman
- Ray Dalio
They are all perplexed by the current market conditions. In fact, some of them are under performing compared to several broad market indexes. If you'd like you can click the links next to their names and get a sense of their bewilderment and angst.
- Warren Buffet: Click here
- Jared Coffin: Click here
- Stanley Druckenmiller: Click here
- Rey Descalso: Click here
- Seth Klarman: Click here
- Ray Dalio: Click here
In our staff meetings, we discuss these topics and share some of our research. We've coined the term, "Cartoon World" for the recent market action. In cartoons, the basics laws of physics are suspended for a time to accentuate the plot and add comic relief. Often times, a cartoon character will run off a cliff, stop mid-air and feel for the now-missing ground, while suspended for too long. Better yet Wile E Coyote will be crushed by his own ACME anvil several times with only minor injuries. In fact, it will only serve to strengthen his resolve.
So too, we see individual stocks suspended mid-air. The underlying company makes no money and is saddled with debt. These stocks aren’t just suspended, they’re soaring. Unemployment numbers can fall like an anvil on the markets only to strengthen their resolve overnight. While none of this is new, the scale and scope is, well, cartoonish.
Another point that our resident Chartered Market Technician, Jared Coffin brought up is that the stock market has basically turned into a war between computers. The old-school days of fundamentals having a significant impact on the market seems to have disappeared, maybe not for good, but at times. Computerized trading has enabled some big institutions to have large hedging programs running in search of lower volatility returns. What is known as gamma hedging has become quite prominent and seems to distort market moves.
“Dealers being long gamma is like a black-hole effect, a negative feedback loop that squishes volatility,” says Kokou Agbo-Bloua, global head of flow strategy and solution at Société Générale. He calls the long stretches of low volatility a “gamma trap.” If you have no idea what that means, that's okay. Nobody understands what Jared says. But I think he's saying that this current cartoon is about fighting robots. Or something.
Am I calling a stock market top at this time? I am not. And it wouldn't matter if I was. You see, the trend is your friend until the end when it bends. We don't make predictions we just watch the trend and manage for risk. What I am saying is enjoy the cartoon. If you'd like to learn more about how to retire in Cartoon World, click here.
The indexes mentioned in this communication are unmanaged and not available for direct investment. Past performance is no guarantee of future results. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information contained in this commentary has been obtained from sources that are reliable. This presentation is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.