Bouncing Cats and other perils
Risky business is exactly what is on order
Do not be fooled.
There is no “dip”.
Never buy on the way down.
We still have a long, long way to go.
Nvidia has fallen from a high of about 1,500 equivalent on this graph to a recent close of 943 equivalent on this graph. Note where we are. There will be a small rally, some fools from retail will rush in to buy “the dip”, some market makers will have to step in, and it will be temporarily pushed up, only to continue its necessary and inevitable fall back down to real value linked to fundamentals like P/E.
On this historical graphic, the Cisco push up from 50 to rally to 70 only to continue its decline to finally bottom around 15 is the classic “dead cat bounce”.
I’m old enough to remember 1987 , 2000 and 2008 first hand.
In response to these crashes, the stock markets instituted “circuit breakers” which are designed to prevent the scenario of 1987 from happening again. The “circuit breakers”, which are 15 minute market halts in trading occur at 7% and 13%, and at 20%, trading is halted for the day entirely.
Team Trump (TT) is serious about this clean-up, with the full understanding that the temporary, very unpopular pain that unwinding QE will create. That is why they pulled the trigger very early on in this Administration, when they had political capital to burn.
China has announced retaliatory tariffs, exactly what they were warned not to do, but expected to do. Strap in, it’s going to get a lot bumpier.
Professional large fund managers have no option but to cash out and funnel funds into bonds, in the classic “risk off/risk on” management scenario, which by the way, is exactly what TT wants. That cash out to convert to bonds and other “safe haven” assets is going to continue the overall decline in equity markets and at the same time, drive down the yields on both 10 Y and 30Y Treasuries.
Exactly what TT wants, and needs. Expect more performative theatrics to create even more market uncertainty until the objectives are realized.
Even the biggest firms are facing margin calls. Expect by the time this is all over for several big-name funds and banks that are teetering on the edge to be donezo.
This again is part of the necessary pain to flush fraud from the markets.
TT has chosen to pick the time of this unavoidable fight and control the terrain with first mover advantage. That comes with risks, losses and pain.
