Year 2000 Redux
Embrace It!
The market has been strong now for two plus years. Nope, the Federal Reserve raising rates didn’t put much of a dent in the economy or market valuations. Historically, the stock market as an investment vehicle would be compared to interest rate alternatives for several reasons. First, comparisons made of the relative return owning bonds versus the earnings yield (flip the P/E, for example 20x equals 1/20 or 5%). When bonds yields are deemed relatively attractive along with rate cut expectations (appreciation), and further combined with high stock valuations and lower earnings growth, most market participants would sell stocks and own more bonds. Don’t get me wrong, pension funds still make these asset allocation decisions. This concept of stocks versus bonds, head winds or tail winds, does not matter one iota any longer. Period. Unless rates are truly so high relative, choking off the economy and earnings, the stock market has a new permanent rhythm. No, not a bubble. More rolling bubbles. You cannot and should not fight bubbles but rather embrace them.
I am not advocating channel your full inner FOMO and throw darts at anything that is moving. I am also not telling myself or anyone to fight these extreme moves. Understand the “why this is happening” and try and take your pound of flesh out of the markets in a disciplined fashion, trade by trade (and investment by investment). So, let’s start with the “why part”. The list of what has contributed to this “new” environment is long:
Covid made everyone a home investing genius (with a painful 2022 set back that can be explained rationally by slowing growth and high valuations).
0DTE has created a massive amount of daily liquidity in the trillions with players all trying to collect daily premiums. A down move is met with massive put selling and vice versa. Only fat tail risk temporarily or partially, permanently can injure this liquidity.
BTC is no longer a daily tulip with no inherent value. The store of value argument fell on deaf ears until the halving event and the creation of massive ETF fund flows. HODL for all. In fact, it is being cornered at a rate faster than any major asset class, probably in history. There will never be more than 21 million BTC and it currently has issued nearly 19.7m leaving only 1.4m new coins to be issued. If everyone HODLs, it can truly be any price. ETF issuance (buying), MSTR and MARA type converts to buy BTC have no reason to stop.