by John Galt
November 19, 2017 22:00 ET
The theory behind Trumponomics is as simple as it gets:
Buy the bubble until you can not afford to.
This is the same issue which arose during the 1990’s, yet few, if any, of today’s young quants can relate to the issues of that time which are mirrored in today’s era of stock froth and insanity. Old dogs like Dennis Gartman and Art Cashin wonder aloud why the traditional shorting and other strategies are floundering in the face of an overvalued market based on theoretical versus real earnings in an economic circumstance of sub 4% “official” GDP growth.
Yet since the crash and low of 666 on the S&P 500 the approximate 388% growth in the price of the S&P 500 is undeniable:
Nice chart as old Dennis would like to say, from the lower left to the upper right. However history is a cruel female dog, and has a tendency to teach lessons to market virgins who were not here for the last bubble implosion; and no, I am not talking about 2007-2009:
For those that were not around/aware of the September 11, 2001 attacks which punctuated the end of the initial “.com” rally from 1992 to 2001, it was simply icing on the cake. The markets were already crashing internally (like now), breadth was horrid (like now), and sentiment was still retarded about the bubble even though brokerage houses were telling their customers that “this is just a pause in a much longer run” and “Dow 30,000” along with other such nonsense (like now).
In reality, just like 2009, only one thing saved the market and that was the Fed funneling money to its banks to buy stocks in late 2001, early 2002 to start the rally which lasted until 2007:
So what does this mean for 2018? Simple:
Unless you have the resources to gamble on a crash like the experts, never, ever go full shortard.
Because you will get burned as many did who thought the Netscape crash and LTCM would make the shorts whole again in 1999. This market could run to 28,000 or higher or crash by 1/3 to 17,000ish. Or as Art Cashin warned last week on CNBC:
It could take one Trumptard move to crash the entire system. And trust me, between the Republicans and Democrats demonstrating their full incompetence, add in a Trumper tantrum and this market could break 30% in DAYS, thus breaking the backs of the longs or inversely, rally higher based on bullcrap, destroying the shorts.
Hedge in safe assets you can hold in your hand and I don’t mean Bitcoin or other cryptos as this will soon be exposed for the fallacy that it is, as the governments of the world demand their cut.
2018 will indeed remind many of the ghosts of markets past; just not the markets for which any of us were alive at that time…