There’s a brand new dance but I don’t know its name
That people from bad homes do again and again
It’s big and it’s bland full of tension and fear
They do it over there but we don’t do it here
Turn to the left
Turn to the right
We are the goon squad and we’re coming to town
Beep-beep Beep-beep –David Bowie
Last week we pointed out that the Casino was merely jerking downward to fill short-term gaps on “Wall Street Fears” (turn to the left) of the trade war. This week begins with pre-market optimism (turn to the right) amid talk of trade war relief (ha ha ha) and a new “Great Rotation” (HA HA double Hardy HAR HAR) to boot.
Wall Street looks set to move higher on Monday on renewed optimism of a trade deal between the U.S. and China. New tariffs are due to hit on Dec. 15, but U.S. President Donald Trump said last week that a deal was “potentially very close.”
This week’s fashion – at the open at least – appears to be a jerk to the right (up). Who’s surprised?
I didn’t think so.
In our call of the day, JP Morgan analysts said 2020 could be the year of the “great rotation” — retail investors abruptly shifting away from bond funds to buying equity funds, last seen in 2013.
But now they’ve done it, the MSM and oh so prescient investment bank JPM. They just had to summon it. They just had to warm over the old “Great Rotation” story.
Okay, what’s going on here? Well first let’s give JPM its due for making a tepidly contrarian call on bonds for next year. Bonds jerked to the left (down) in 2018, jerked to the right (up) in 2019 and now it is not the easiest thing to call for a bond bear in 2020. So okay boyz, good on you.
But let’s drill deeper. Why oh why were there no calls for a “great rotation” in Q4 of 2018 when all that BOND BEAR!!! stuff was in the headlines? Duh, because stocks were down and nobody felt bullish. That’s why. Today, as in 2013, stocks are duh… up. Great Rotation my ass. Great headlines is more like it.
It’s all part of the markets becoming fun again and that is because while herds of humanity and machinery will chase surface level stuff like ‘interest rates are rising… sell bonds and buy stocks!’ for a while, the yield curve would likely also steepen in that event, along with rising inflation expectations. Which means that this time, unlike in 2013, when a virtuous Goldilocks cycle was in effect, more traditional receivers of inflationary benefit may well out perform.
If… a “Great Rotation” (ha ha ha) out of bonds takes effect, as I for one currently expect.
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