Warm Up
Posted on Sunday, June 6th, 2021
Apparently I am not 25 years old anymore. After taxing my neck with travel to Sarasota and then spending my week at the computer I sped down to the golf club on Sunday for my tee time. I hit 7 or 8 balls to “warm up” and rushed to the tee box. Apparently, I need a bit more of a warm up than that. On the first tee shot I felt a nasty pain in my neck. I have not been near my golf clubs since. I took a tumble a decade ago which led to a cervical fusion in my neck. Golf and cervical fusions don’t mix well but golf is my sanity so I soldier on. I think I will be doing a slower and more complete warm up routine as I approach my 60’s. At least if I can play into my 60’s. As mom says, “getting old isn’t for wimps”.
It has been a very slow market of late outside of the AMC and GameStop pyrotechnics. For those of you playing at home it is the new technique of the gamma squeeze playing out again. After the latest stimulus checks went out the reddit gang was back at it buying short dated out of the money call options on AMC sending it sky high. Looks like that may be the only game in town this summer as everyone else seems to have gone to the beach.
This has been a helluva run in stocks from the March lows all while without even really experiencing the usually recession beforehand. That run in stocks has been coupled with record revisions of earning forecasts setting us up for what would seem to be an inevitable fall.
Wall Street is basically extrapolating nirvana beyond the foreseeable future, with record earnings surprises resulting in record revisions. According to Mike Wilson (Morgan Stanley), “never before have we observed earnings revisions breadth this high (Exhibit 2), leaving it vulnerable to an inevitable decline. (zh)
However, what goes up does not necessarily come down. Markets can trend sideways as well. We see some place for the market to retrace some gains. We understand we have all time high valuations but we also see all time high support from governments. While Wall Street may be extrapolating nirvana into the future the key is will we still have heavenly support from central bankers and Washington DC? If we are at peak support then prices can tumble. If support soldiers on – so do prices. We would expect the markets to take a rest here and they have. A 10-15% tumble in prices would be healthy and would not surprise us – but that seems to be what everyone is expecting. When everyone expects something to happen something else will. Everyone is also expecting more inflation as those headlines have become ubiquitous. When we started talking inflation people were still making fun of people talking about inflation. Does that trend change? Will the inflationistas shrink in their conviction and get shaken out of their positions? We think that their conviction on inflation gets tested before inflation heads higher.
CNN Fear and Greed is back to neutral which about sums it up. The markets are stuck in neutral and are range bound. The S&P 500 has been stuck in a range for two months while the small cap Russell 2000 has been stuck in the mud since late January. All of the action has been in commodity plays and in a rotation from growth in to value. Keep an eye on gold, Europe and Japan. The latter two are breaking out of ranges they have been in for years if not decades. The old saying on the street is “the bigger the base the higher in space”. These are huge bases and those areas of the market could outperformer the US for years to come.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.