Juggling Dynamite

The ‘gamifying’ of stock trading has become all the rage once more thanks to the financial sales marketing machine, a go-for-broke mentality in participants hoping to ‘win’, and misplaced confidence that central banks are able to prevent asset prices from going down.  This is what a shit show looks like and it always ends in shambles.

We are reminded of the tech-wreck top in 2000, the US housing and commodities bubble in the 2006-07 top, crypto-mania in 2017 and pot-stock euphoria in 2018.

Charlatans and the wilfully blind lead oblivious, greed-filled followers into harm’s way, as broker-dealers sell the order flow to ‘market makers’ who front-run to skim profits from dupe customers who think they are trading for free.

This should be banned by existing securities regulation but those on the take are making a fortune and are able to placate those in charge with revolving door appointments as they move in and out of the public sector.  Adults that should know and do better have left their duty of care far behind. This morning brings a particularly tragic story in 20-Year old Robinhood customer commits suicide after seeing a $730,000 negative balance:

Robinhood, E-Trade, TD Ameritrade, Charles Schwab, Interactive Brokers, Fidelity and even Merrill Lynch have all embraced commission-free trading and zero minimum balances [Park note: while making hundreds of millions by selling their clients’ order flow to frontrunners] in an effort to attract younger customers, many of whom have little understanding of the securities and markets they are dabbling in.

“I thought everything was going fine,” says Bill Brewster, Kearns’ cousin-in-law and a research analyst at Chicago-based Sullimar Capital Group. His father said he was loving the markets and really enjoying investing, Brewster told Forbes, “and then on Friday night, we got this call from his mom and he had died.”

…Confetti popping everywhere,” says Brewster referring to the shower of colorful confetti Robinhood routinely deploys after customers make trades. “They try to gamify trading and couch it as investment.”

Meanwhile, in the financial casino…stocks are leaping again on recycled headlines of debt-financed spending by governments and more loans to small businesses, even though the first business loan programs have not been taken up as hoped.

Weak demand is the global problem that policymakers cannot fix it.  It has always been customers that drive sales and jobs, not CEOs or central banks, and today, customers are retreating from discretionary spending, focused on survival and saving where possible.

Ninety percent of the world’s economies are now in recession–more than during the Great Depression or any other time in the last 150 years–as shown in the chart on left from Soberlook.

While 78% of asset managers surveyed by Bank of America admit that stocks are ‘overvalued’ on reliable metrics as shown beside–even more than in 2017 or 1999– hedge funds are holding the most speculative long positions in equities since September 2018 just before the 4th quarter meltdown that year.

Not everyone is taking the clickbait though, despite yields suppressed near zero, cash held in money market funds hit a record high last week as shown below. Past tops in money market funds coincided with the equity market tops in 2000-01 and 2007-08.

Not everyone is a sucker for FOMO.  When everyone without meaningful loss-avoidance rules has bought, when all the long-always money to be wagered is in, the market reaches a stand-off between bulls and bears.

Holders can lever themselves some more to buy even more assets at nonsensical prices, but value-conscience buyers, who understand the math of loss and are free to exercise independent decisions, patiently wait for rational prices to present.  We do this because we know that it is necessary in order to make lasting progress, with positive compound returns over full market cycles.

Some sober observations in this clip from someone with decades of experience in virus treatment and vaccine development:  “Herd immunity to COVID-19 is a fantasy.” We aren’t going back to ‘normal’ any time soon.

William Haseltine, who designed the strategy to develop the first treatment for HIV/AIDS and is now chair and president of consulting group ACCESS Health International, talks about the coronavirus outbreak. He speaks with Haidi Stroud-Watts and Shery Ahn on “Bloomberg Daybreak: Asia.”
Here is a direct video link.