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Fleck's Thoughts
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Nasdaq 1007251.41-0.06
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Long Bond 20-year143.62-0.02

FAANG Carries the Day


The SPOOs were about 0.5% lower overnight, as China's latest action in the current trade battle was apparently enough to spook speculators, at least a little bit. Thus far, stock bulls obviously don't think these trade machinations will lead to much, but it is virtually impossible to sort out what Trump is liable to do on most any topic.

An Unaccountable Advantage Nevertheless, if he thinks he is going to win a trade war with the Chinese, I think he is mistaken because there are a lot of things China can do that would be quite disruptive to the U.S., but more importantly, the political leadership there doesn't have to run for election as ours does here. Thus, they can most likely take more pain than we can. But that fact will only matter if things escalate to the next level.

Turning back to the action, after opening weaker, the indices rallied through midday and cut the losses to just small fractions, with the exception of the Dow, which was down over 0.5%. In the afternoon, the grind higher continued (powered by FAANG), with the Nasdaq closing flat compared to small losses for the Dow/S&P.

Away from stocks, green paper was mixed after last week's violence, oil added 1%, fixed income was flat, and the metals were a little lower, although the miners themselves continued to behave in a constructive fashion.

Any Idiot Can Do It I would now like to address the topic of speculation. It would seem we are experiencing some of the worst behavior from both of our prior two bubbles. This weekend there was an article in the Wall Street Journal concerning the increasing use of HELOCs, and while driving around last Saturday I heard an infomercial for a day-trading academy that made the claim that it was "easy to support your income" and you could make $500 to $5,000 in "only a few hours a day."

Because I was curious, I copied down the phone number, and the website (for anyone else who is curious as well) is www.sp500trader.com. Of course, they make their money charging you a fortune to learn how to do this, but it is a sign of the times. Just as we are seeing the highest level of debt to GDP ever, record margin debt, monkey business in the credit stack that has gone unnoticed, and so on, they have all combined to create an incredibly risky juncture.

Confetti-ing Over Our Problems But as we have seen, no amount of bad policy or reckless behavior has mattered because of the tailwinds of QE. QT is going to be a different story, and while there hasn't been enough of that to "trump" QE, it will happen. Big losses are coming again, but it is unfortunately impossible to know in advance what the timeline is because we have never seen QE before. Thus, it is not possible to predict when the handoff to QT will hurt the price of stocks, but it is a certainty that it will. Meanwhile, any sort of craziness is rewarded, but it does seem beneath the surface that there are lots of stocks not rallying, even if the Nasdaq has managed to get to a new high (led by FAANG).