There is distribution taking place in literally every sector. It's in your face, intentionally malevolent, unrestricted selling. It's happening across sectors from finance, technology, retail and biotech. Individual names such as C, BAC, BRK, CAT, AMZN, FB. There's no discrimination taking place. Whether the stock is sitting near its highs or well below, shares are being distributed.
In the most obvious illustration possible, there are significant entities that want out of equities. All the meanwhile, there are groups attempting to sooth investors into a sense of complacency about this current downturn, with a "this too will pass" attitude. While a confident sense of bullish enthusiasm may have been the default stance for the majority of this decade, the current situation warrants a much more cautious approach. Not simply because of the distribution taking place either. As I have been saying for a majority of this year, everything has changed in 2018.
Let's look at the most obvious fact of all: If you are long equities, you are now officially fighting the Fed as quantitative tightening (QT) has shifted into 5th gear as of October. Keep in mind, the QT that took place throughout a majority of this decade injected literally trillions of dollars into the financial system that allowed companies to function against an environment where the cost of doing business became extraordinarily cheap. So cheap, in fact, that a majority of corporate executives decided that nearly free money would be best used to buy back their own stock, boost the valuation of their companies, collect inordinately large bonuses , eventually walking away as heroes with flower wreaths, lipstick on their cheeks and chests puffed out with a mission accomplished swag few could muster.
The QT that will continue for the next few years, as of Q4 2018, is now removing $50 billion MONTHLY from the Fed's balance sheet. Not only does that put pressure on rates to move up, but it effectively acts as steroids to the monetary tightening taking place. The QT that started last year, up to the end of Q3 2018, was at a much more moderate pace. The move up to $50 billion in QT that started in October was preplanned. We have all witnessed the reaction of the markets to this tightening, as we are now in the midst of some of the steepest losses of this bull market to date.
All the meanwhile, there is an adversarial tone taking place from the White House with respect to any measures of monetary tightening. Should the equity markets continue to decline, then the growls will grow louder and eventually, there will be need to a resolution. In other words, one side will back down. This will THE story for 2019. The resolution that takes place, as a result, in most any case, will be a net negative for the financial markets. The integrity of the Fed will be compromised regardless.
Yes, everything has changed in 2018. 2019 will simply bring an acceleration of that change, with dramatic shifts taking place in asset allocation. What you think is "right" to be invested in up to this point is in the process of being irreversibly battered, beaten and flipped on its head, to the point it becomes unrecognizable moving forward.
Proceed gingerly.
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