I am putting on my trader's hat here to tell you a story. I am a big bond bear. Kodiak grizzly size. I have been early, so I am by no means claiming that I have gotten the trade correct.
But this summer I got really bearish. At my peak bearishness, I wrote this apoplectic tweet storm that outlined all the reasons I thought the bond rally was overdone.
The date? August 19th, 2019. You can read the whole thread here.
At that point the U.S. long bond future had rallied over 10 handles in less than a month! Bonds were in the midst of an epic squeeze that was unprecedented in a non-crisis environment.
Do you know what happened from there? It rallied another 3 handles.
During that final part of the squeeze, the trash-talking was worse than that little-ball-of-hate Brad Marchand. It was hilarious how every tick the long bond rallied in my face, I would get taunting tweets from the yield-bugs who had drawn their trend lines and were convinced US rates were headed to negative yields.
Well, what do you think happened?
We have melted since that point.
I am a big boy and do not begrudge the trash talk. That the bond bulls were confident to the point where they publicly ridiculed my position only increased the chances that their bullish argument was already in the price. Pushback of that ferocity only encouraged me to add to my trade. Instead of being angry at the bulls' cockiness, I would like to thank them.
Which brings me to today's market.
The other day on CNBC, Andy Sieg, head of Merrill Lynch Wealth Management, admitted that his personal allocation to stocks was over 80%. Not to be outdone, CNBC anchor Becky Quick countered with a "I’m 100% in equities. … You’re never going to make enough money if you have 40% of your money in bonds."
I am not trying to pick on Becky. She claims to have been 100% equities for quite some time. Maybe she has. If so, good for her as US stocks have been on quite the tear.
However, I would like to point out that Becky was not bragging about this allocation at any time during the past decade. No, she has chosen December 2019 with the S&P 500 up more than 360% since the bottom to let us know about her over-allocation.
Herein lies my point. Just like this summer when bonds had already ripped 13 handles higher, market participants usually express this sort of arrogance at points when they feel confident. Extremely confident.
What do I take from this? It's not the time to be reaching for exposure. I don't need to know anything else except that CNBC anchors are competing with their guests about the size of their stock allocations.
Could we go higher? For sure. A good trader knows to never say never.
Is that the right bet? I don't think so.
We all know that famous line from that rich-old-grandpa:
I'll leave it to you to decide if others seem greedy or fearful...
Thanks for reading, Kevin Muir the MacroTourist