A Wall too Tall
As of late the concept of a wall has been a controversial item, causing great discord between political partisans, left and right. Historically, in reference to financial markets the proverbial wall of worry that a bull market faces is a unifying concept.
Our indicators are showing too many big bricks in the wall, at the moment.
This week's renewed trade strife between China and the US may have just put that wall at a level that is hard to scale for any bull.
Let's dissect some of these bricks of worry. The trade war with China is back on.
In efforts to motivate the Chinese to get back to the table with some urgency, President Trump has threatened to restart and escalate a trade war.
Threatening to increase current levels from 10% to.25 % percent on $200 billion and then to ramp that up on the remaining $300 billion of exports from China to 25% ,Trump wants attention now. As of this writing the Chinese trade team still is making its way to meet in the US later this week to discuss possible solutions.
A second ugly geopolitical brick layering was placed on the wall with the outbreak of hostilities this weekend in missile fire between Iran and Israel. With US military peacemaking assets steaming towards the Persian Gulf, a real war although remote, is now a very slight possibility. Although tensions have leveled off as a ceasefire has been called in Egypt between combatants Monday.
Now let's examine the mounting, negative internal indicators that are very disturbing.
Low volatility smacks of overconfidence, the vix indicator of volatility has reached lows not seen since last September preceding a 20% drop.
Overly bullish sentiment. The Citigroup Market Sentiment Panic/Euphoria is again indicating euphoria. After the last buyer has bought who's left? Warren Buffett just announced that he sees Amazon (AMZN) as a value stock and therefore, is taking a large position. He has watched it go nearly up 1000 fold, from a billion to a almost trillion, before he capitulated.
Not to be overlooked, we can mention the old standbys, high insider selling and the flat yield curve to provide more bricks.
Finally, in the tradition of saving the worst for last. The pipeline of IPO issuance this year could blow away the dot com. bubble levels from 1999 and 2000 by a large margin. Uber, the mother of all IPOs will be sucking a lot of the liquidity out of the market, later this week. Uber, Lyft, Palantir and Slack, Airbnb, and others could reach a combined valuation over $200 billion, with Uber the largest by far. This would make 2019 the year of the “Balloonicorm, shattering IPO issuance from the dot.com bubble with 226 companies set to launch of which there are 119 companies that would be classified as “unicorns,” or private companies with valuations over $1 billion. This could more than exceed 1999 and 2000 where just under $100 billion was issued in those years.
https://www.cnbc.com/2019/02/04/a-giant-ipo-wave-is-coming-as-unicorns-whet-investor-appetite.html
A bull market climbs the proverbial wall of worry but this looks like a great wall too high.
We like select shorts (HDGE), gold (GLD) ,Bitcoin (GBTC), as shelter from the storm.
For a free trail please visit us at : https://singularresearch.com/index.php/en/trial-offer
Commentary & Strategy by:
Robert Maltbie, CFA
President - Singular Research
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