MBMG IA Flash⚡SEEN THIS MOVIE BEFORE #7
SEEN THIS MOVIE BEFORE #7
We recently* quoted Howard Marks talking about 3 stages of the markets
“the third stage [is] when people believe things can only get better forever.”
Just after that, we made the point that Tesla, Ark Innovation and Bitcoin (GBTC) were at a crucial juncture – close to support levels. If these held, they could rebound, if not, the outlook for all 3 was, to varying degrees risky and/or bearish.
What’s happened since then?
Note:
*‘Seen this movie before #6 Aging Bull?’ MBMG IA, 4th March 2021 – MBMG IA 6th March 2021
** ‘Support is futile’ MBMG IA 6th March 2021
Tesla rallied from support (although it’s still around 15% below its all time high) – i.e. it’s still got positive momentum
Ark has struggled and is bouncing around (some 20% below its ATH) – i.e. it could go either way.
GBTC has cratered (some 25% below ATH) and currently seems to be in freefall (although as it’s prices are liable to extreme manipulation, normal rules might not apply).
All of these could change in the blink of an eye, but this is consistent with the idea that when liquidity bubbles burst, they can do so in stages or instalments. A number of commentators, including JPM’s Marko Kolanovic have made the point that if liquidity is reducing or tightening (and remember it’s the delta or the change in the rate of liquidity that’s the key) then you’d expect the biggest beneficiaries - what we would call meme stocks/funds like Ark or FANGs – to suffer first, followed by maybe broader tech/momentum stocks, before the broader index shows the strain and finally value stocks also suffer. It seems like the first phase has happened/is happening-
As stated, this could all change in the blink of an eye, with either new injections of liquidity or if economic and market results somehow exceed the very high bar that has been set for them (although the positive surprise of a stronger than expected recovery also creates challenges for meme stocks and meme funds with the looming threat of higher inflation and higher interest rates.
It’s a challenging environment for last year’s winners whatever happens
A gradual reduction in liquidity and/or expectations is likely to see rotation from COVID’s outright winners to secondary COVID beneficiaries to the broader market to more defensive stocks before ultimate capitulation if the liquidity cavalry don’t manage to ride to the rescue in time.
Maybe, if I were Cathie Wood at Ark, I’d be praying for miracles too (or at least for a different outcome to that of her friend Bill Hwang*).
https://mbmg-group.com/article/liquid-lunge-seen-this-movie-before
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About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner.
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