Former Lehman trader and BBG macro commentator Mark Cudmore, who traditionally has had a cheerful and quite bullish outlook on the market – with the occasional attempt to time the top – appears to have woken up on the wrong side of the bed this morning and in his latest Macro View note explains why he feels there is a persistent sense of dread surrounding markets, not for any tangible reason, but for a much simpler reason: “no-one else out there seems worried at all.”
Of course, record complacency is hardly new, but the moment of realization when all those “complacent” realize they are on the same side of the boat is perhaps the biggest risk, as it is precisely when those who were buying until now decide it is prudent to sell ahead of everyone else, and what ensues next is an avalanche of liquidation frontrunning.
His full thoughts below:
The Lack of Nervousness is Making Me Very Nervous: Macro View
I’m suddenly nervous about global equity markets and it’s not for any good fundamental reason. My concern is primarily driven by the fact that, for once, no-one else out there seems worried at all.
On Tuesday, the Dow Jones Industrial Average fell the most in eight months, with the MSCI All Country World Index suffering the most in five months. The losses are widespread but it seems nobody cares.
“This is just a healthy correction amid a strong bull market,” is the rough consensus. I’ve been repeating the same thing myself on Bloomberg TV. Where are the bears? A 33% jump in the VIX across two days would normally have them very animated. Yet they are silent.
Tax cuts are now cited as a positive game-changer, only a month after their impact was doubted. Higher yields are perceived as a sign of economic optimism rather than a reflection of monetary tightening. Dollar weakness now apparently only brings global economic benefits, even though the U.S. is the most important consumer market in the world.
Macro traders now suddenly value higher equity earnings and improved growth outlooks despite spending last year doubting whether those were enough to drive markets yet higher.
A record percentage of Americans expect equities to rise in the year ahead, according to a Conference Board survey which goes back more than thirty years.
This bullishness all seems logical to me. I’m the one who constantly reiterates that the three pillars — growth, earnings and liquidity — of the global equity bull market are solid and any correction is just that: a correction within an ongoing bull market.
But I’m also a big believer in Warren Buffett’s adage that it’s wise to be “fearful when others are greedy and greedy when others are fearful.” I’ve been happy for the past couple of years when my ever-present underlying bullishness has been ridiculed by some.
Now everyone seems to be on my side of the boat, and I want to move to the other side at least until others join me. Or until the boat capsizes.
Apple, the single largest-weighting in the S&P 500 and the bellwether for both U.S. equities and the technology sector, is trading terribly in technical terms. If no-one else is going to be concerned, then I’m now officially very worried for global equity markets.