{"id":1493310,"date":"2024-10-01T17:45:00","date_gmt":"2024-10-01T21:45:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1493310"},"modified":"2024-10-01T17:45:00","modified_gmt":"2024-10-01T21:45:00","slug":"the-everything-market-could-last-a-while-longer","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/the-everything-market-could-last-a-while-longer\/1493310\/","title":{"rendered":"The “Everything Market” Could Last A While Longer"},"content":{"rendered":"

The “Everything Market” Could Last A While Longer<\/span><\/p>\n

\n

Authored by Lance Roberts via RealInvestmentAdvice.com,<\/em><\/a><\/p>\n

We are currently in the\u00a0\u201ceverything market.\u201d<\/em>\u00a0It doesn\u2019t matter what you have probably invested in; it is currently increasing in value. However, it isn\u2019t likely for the reasons you think. A recent Marketwatch interview with the always bullish Jim Paulson got his reasoning for the rally.<\/p>\n

\u201cIt is this cocktail of \u2018full support\u2019 at the front end of a bull market which commonly has created an \u2018Everything Market\u2019 during the early part of a new bull. That is, for a period, almost everything simultaneously rises \u2013 value, growth, small, large, defensive, and cyclical stocks \u2013 and usually by a lot<\/em>.<\/p>\n

Short rates are falling, bond yields have declined, money growth is rising, fiscal stimulus has again expanded, and disinflation is still evident;\u00a0<\/strong>and because of this new and overwhelming support, expectations for a soft landing should grow while both consumer and business confidence improves.\u201d<\/em>\u00a0\u2013\u00a0Jim Paulson<\/em><\/p>\n

<\/a><\/p>\n

But that isn\u2019t the reason.<\/p>\n

On the other side of the bull\/bear argument are\u00a0\u201cgold bugs\u201d<\/em>\u00a0enjoying soaring gold prices because\u00a0\u201cdebts and deficits\u201d<\/em>\u00a0are finally eroding the U.S. economy. As Michael Hartnet of BofA recently stated:<\/p>\n

\u201cLong-run returns in commodities are rising\u00a0<\/strong>after the worst decade since the 1930s, led by gold, which is a hedge against the 3Ds: debt, deficit, debasement.\u201d<\/em><\/p>\n

The evidence doesn\u2019t support that view. Historically, when deficits as a percentage of GDP increase, gold does very well as concerns about U.S. economic health increase\u00a0(as per Michael Hartnett of BofA.)<\/em>\u00a0However, gold performs poorly as economic growth resumes and the deficit declines.<\/strong>\u00a0Such is logical, except that since 2020, gold has soared in price even as economic health remains robust and the deficit as a percentage of GDP continues to decline.<\/p>\n

<\/a><\/p>\n

While stocks and gold have risen this year, bonds, commodities, real estate, and cryptocurrencies have also enjoyed gains.<\/p>\n

<\/a><\/p>\n

In other words, whatever your\u00a0\u201cthesis\u201d<\/em>\u00a0is for whatever asset you own, the price action currently supports that thesis. That does not mean your thesis is correct.<\/p>\n

In an\u00a0\u201ceverything rally,\u201d<\/em>\u00a0rising asset prices cover investing mistakes.<\/p>\n

Therefore, this analysis should elicit two important questions:\u00a01) what drives the \u201ceverything rally,\u201d and 2) when will it end?<\/em><\/p>\n

Whatever Your Thesis Is \u2013 It\u2019s Probably Wrong<\/strong><\/h2>\n

When it comes to what is driving the\u00a0\u201ceverything rally,\u201d<\/em>\u00a0everyone has their thesis. The\u00a0\u201cstock jockeys\u201d\u00a0<\/em>suggest that easier monetary accommodation by the Fed and improving earnings are the key drivers for equities. As noted above, the\u00a0\u201cgold bugs\u201d<\/em>\u00a0are seduced by burgeoning government spending and expectations of a dollar decline to loft gold prices higher. Every asset class has its\u00a0\u201creason\u201d<\/em>\u00a0for going higher, but the real reason may be much simpler. This post will focus on stocks and gold as they garner the most headlines and have the most fervent of\u00a0\u201ctrue believers.\u201d<\/em><\/p>\n

In every market and asset class, the price is determined by supply and demand. If there are more buyers than sellers, then prices rise, and vice-versa. While economic, geopolitical, or financial data points may temporarily affect and shift the balance between those wanting to buy or sell, in the end, the price is solely determined by asset flows.<\/p>\n

Notably, the amount of money flowing into assets has been remarkable since 2014. Despite many\u00a0\u201cconcerns,\u201d<\/em>\u00a02024 is on track to be the second-strongest year of monetary inflows since 2021. That statistic is amazing when considering the government was flooding the system with trillions in monetary and fiscal stimulus then versus contracting it currently.<\/p>\n

<\/a><\/p>\n

Unsurprisingly, as asset prices increase during the\u00a0\u201ceverything market,\u201d\u00a0<\/em>more money is pulled into those assets, forcing prices to rise as demand outstrips supply.\u00a0As we noted previously<\/em><\/strong><\/a>, for\u00a0\u201cevery buyer, there is a seller<\/em>\u2026at a specific price.\u201d<\/em>\u00a0That\u00a0\u201cdemand\u201d<\/em>\u00a0for stocks, gold, real estate, cryptocurrencies, etc., comes from many sources.<\/p>\n

Hedge funds<\/em>
\n\tPrivate equity funds<\/em>
\n\tCorporate share buyback programs<\/em>
\n\tPassive indexes<\/em>
\n\tPension funds<\/em>
\n\tInstitutional funds<\/em>
\n\tMutual Funds<\/em>
\n\tRetirement plans<\/em>
\n\tGlobal investors<\/em>
\n\tRetail investors<\/em><\/p>\n

Most important is the supply of capital from Central Banks.<\/p>\n

<\/a><\/p>\n

Of course, a massive accumulation of cash in money market funds will face declining yields as the Federal Reserve cuts interest rates.<\/p>\n

<\/a><\/p>\n

As noted, whatever your\u00a0\u201cthesis\u201d<\/em>\u00a0for owning an asset probably isn\u2019t the actual reason. There are three primary reasons why asset prices are rising in the\u00a0\u201ceverything market.\u201d<\/em><\/p>\n

Liquidity<\/em>
\n\tLiquidity<\/em>
\n\tLiquidity<\/em><\/p>\n

In other words, in an\u00a0\u201ceverything market,\u201d<\/em>\u00a0there is too much money chasing too few assets.<\/p>\n

<\/a><\/p>\n

As noted,\u00a0\u201cmoney flows\u201d<\/em>\u00a0are the\u00a0\u201cdemand side\u201d<\/em>\u00a0of the equation. As previously discussed, the\u00a0\u201csupply side,\u201d<\/em>\u00a0or the amount of\u00a0\u201cassets available,\u201d<\/em>\u00a0continues to decline. Such explains why managers continue to\u00a0\u201cchase stocks\u201d<\/em><\/strong><\/a>\u00a0despite high valuations.<\/p>\n

\u201cThe number of publicly traded companies continues to decline, as shown in the following chart from\u00a0Apollo.<\/a>\u00a0This decline has many reasons, including mergers and acquisitions, bankruptcy, leveraged buyouts, and private equity. For example, Twitter\u00a0(now X)\u00a0was once a publicly traded company before Elon Musk acquired it and took it private. Unsurprisingly, with fewer publicly traded companies, there are fewer opportunities as market capital increases. Such is particularly the case for large institutions that must deploy large amounts of capital over short periods.\u201d<\/em><\/p>\n

<\/a><\/p>\n

The same is true for gold. While the demand for gold increases as prices rise, the supply of gold has declined since 2019.<\/p>\n

<\/a><\/p>\n

As such, gold is no longer a\u00a0\u201crisk-off \u201d\u00a0<\/em>asset with a negative correlation to equities but is now a risk-on asset, just like equities. The 4-year correlation to the S&P 500 is near previous peaks, with subsequent performance.<\/p>\n

<\/a><\/p>\n

Of course, these\u00a0\u201ceverything markets\u201d<\/em>\u00a0can last much longer than logic suggests. However, they do end. What causes\u00a0\u201ceverything markets\u201d<\/em>\u00a0to end is whatever exogenous, unexpected event turns off the flow of liquidity.<\/p>\n

Technically Speaking<\/strong><\/h2>\n

As noted,\u00a0\u201ceverything markets\u201d<\/em>\u00a0can last longer than logic dictates. However, they eventually end, and we don\u2019t know what will cause it or when. Take a look at the two charts below.<\/p>\n

In each chart, I have denoted periods where three factors occurred:<\/p>\n

The market traded at 2-or more standard deviations above the 4-year moving average<\/em>
\n\tRelative Strength was overbought on a long-term basis<\/em>
\n\tThe MACD was elevated and triggering a \u201csell signal.\u201d<\/em><\/p>\n

<\/a><\/p>\n

<\/a><\/p>\n

In both cases, these technical extremes marked short to long-term corrections and consolidations for stocks and gold. For the S&P 500 index, these periods also corresponded to more important headline events such as the\u00a0\u201cCrash of 1987,\u201d<\/em>\u00a0the\u00a0\u201cDot.com Crash,\u201d<\/em>\u00a0and the\u00a0\u201cFinancial Crisis.\u201d<\/em>\u00a0Notably, like the S&P 500, the technical deviations for gold are also at levels that have denoted short to long-term corrective cycles.<\/p>\n

As Paulsen noted in his interview,\u00a0\u201ceverything markets\u201d<\/em>\u00a0typically last only six months to a year. He expects this one to be in force at least for\u00a0\u201cthe next several months.\u201d<\/em><\/p>\n

\u201cAlthough the road ahead, even if some of my thinking proves correct, will still be interrupted by regular bouts of volatility, investors may want to consider staying bullish during the next several months, finally enjoying a mini restart to this bull market and perhaps witness what full support can do for your portfolio.\u201d<\/em><\/p>\n

We have no idea what will eventually cause a shift in liquidity as the Federal Reserve and global central banks move back into easing mode.\u00a0(The monetary conditions index combines interest rates, the dollar, and inflation. It is inverted to correspond to rising asset prices.)<\/em><\/p>\n

<\/a><\/p>\n

Critically, September was the biggest month of monetary easing since April 2020 amid the global pandemic crisis.<\/p>\n

<\/a><\/p>\n

Notably,\u00a0an eventual reversal could be caused by a\u00a0\u201ccrisis event\u201d<\/em>\u00a0or a reversal of monetary flows.\u00a0The technical analysis tells us that it will occur<\/strong>\u00a0and likely when the fewest investors expect it.<\/strong><\/p>\n

But that isn\u2019t today.<\/p>\n

Of course,\u00a0this is always the case, so investors regularly\u00a0\u201cbuy high<\/em><\/strong>\u00a0and sell low.\u201d<\/strong><\/em><\/p>\n

Remember Warren Buffett\u2019s famous words when investing in an\u00a0\u201ceverything market.\u201d<\/em><\/p>\n

\u201cInvesting is a lot like sex. It feels the best just before the end.\u201d<\/em><\/p>\n

Of course, maybe that is why Warren has been raising a lot of cash lately.<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nTue, 10\/01\/2024 – 13:45<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/everything-market-could-last-while-longer<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

The “Everything Market” Could Last A While Longer Authored by Lance Roberts via RealInvestmentAdvice.com, We are currently in the\u00a0\u201ceverything market.\u201d\u00a0It doesn\u2019t matter what you have…<\/p>\n","protected":false},"author":0,"featured_media":1493311,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1493310","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1493310","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1493310"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1493310\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media\/1493311"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1493310"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1493310"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1493310"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}