E Ignoring Unintended Consequences

By ignoring unintended consequences – spinning around global monetary or interest rate policy moves (especially the trend toward negative rates we took to task quite extensively last night); the optimists rationalizations have instead rapidly moved to weaken the Street’s credibility to ‘stay the course’ with longs. 

A sign of this was Larry Fink’s (Black Rock) admonition in a letter to hundreds of corporate CEO’s today, in which he chastised their focusing on shorter-term nuances like minor earnings changes or guidance, rather than reverting totally to extolling long-term virtues and ‘strategic’ goals for a company’s distant future (he’s right, but you know what that means when huge money managers talk of a longer-term focus). 

That of course means sell the rallies (well we did so for most of 2015; as it was the right thing to do in the presence of not just Fed, but buyback-sustained lifts that had no correlation to equity values or prospects). It also means if one didn’t get out, whether one sells now (even after the fact of rebound peak Monday the 1st of February almost like clockwork as aligns with our forecast evolution of all this) or doesn’t, he’s encouraging a ‘long-term view’. That normally means he’s thinking near-term vulnerability. Hence he’s asking for ‘corporate hand-holding’, in a sense trying to make it easier to keep investors from increasing redemption pressures; at a time of year when normally you see money flowing in, not out. 

We’ve detected not only all of this with respect to patterns (mostly in-advance); but importantly mentioned that buying of Utilities (or Preferred’s for that matter) were symptomatic of a taste for safety as well as yield-chasing. That type of behavior normally reflects a reticence to buy equities, As it’s very defensive.

The last couple reports clearly indicated why I thought the reflex rebound would dissipate entering February. Monday down reversal was pretty dicey, Although I’m sure glad we suggested using the early final-hour move to intraday highs for a good spot to layer-on more (or new) shorts; perhaps useful for new members.