The headline is stark and negative: "Markets Rise in Lockstep, Raising Worries of Reversal."
The big concern: Stocks, bonds, gold and bitcoin are all moving up in unison, which makes the market "vulnerable to sharp reversals."
I am never one to say we aren't vulnerable to sharp reversals. We have been vulnerable and are vulnerable every day. I remember a particularly halcyon moment for my hedge fund back in 1990. We were up nicely and we decided to take August off and stay on Martha's Vineyard. We got there Aug. 1.
On Aug. 2, we got a call at 4 a.m. from one of our key brokers saying Iraq had just invaded Kuwait.
I left that night -- fog kept me socked in -- and I never saw the house again.
So I am totally all in about sharp reversals from nowhere.
But that cast of rising characters -- stocks, bonds, gold, bitcoin -- a move The Wall Street Journal says "rarely" occurs?
First, for most of my career, when interest rates went down, stocks went higher. That's been the single most important tandem I can recall. We are in a rare moment where we do want rates to rise to validate what we hope is a stronger economy, because the Fed is tightening as if we have one. But we have never had such an incredible fluidity in fixed income than we have now. You want to own an Italian 10-year bond at the same rate as a U.S. one? It's just insane if you do. That money's coming here, not staying there. How about a German 10-year where you make nothing? That money's coming here, too.
All of Europe's like that.
I go into this because there are certainly some extenuating circumstances to rates going lower, but regardless, low rates have been historically fabulous for stocks and you can't look through them now.
Gold? The precious metal has had many sustained rallies along with stocks. There are plenty of structural factors that make it that way as it, too, is a worldwide market more heavily influenced by fund flows from China and India than the United States. And bitcoin? It's a great way to get money out of a country that you think is failing or about to expropriate your cash. It's traceless so no one in the Venezuelan government is going to be able to follow it. It's invisible to the taxman so those countries in Europe that raised taxes provide a ready-made market. It's the answer for the Chinese because gold's too easily confiscated. You don't think it could happen in these countries? Well, how about ours? FDR confiscated your gold in 1933. You can't confiscate bitcoin.
Plus, we now know that many institutions fearing cyberattack have been buying bitcoin to pay off the attackers and they have gotten so brazen when they hack individual PCs that they have customer service lines telling you how to buy bitcoin in order to get your PC unfrozen. Now what the heck does that have to do with the price to earnings ratio of Johnson & Johnson (JNJ) or any other stock for that matter?
Again, there's plenty of unseen worries, ones like Iraq invading Kuwait that wrecked a perfectly placid summer. But the rise of stocks, bonds, gold and bitcoin, let's just say they will mostly likely not be the cause of a reversal. It's a perma-headline that generates fear and not much else.