In early May I published a note titled "Investors Should Stay For The Crescendo To Come."
Quoting now from that May 10th note:
Essentially, what you have here are layers of overreaction from every single front. Much like a torrent of water from a tsunami, the overreaction is reaching different parts of the economic and financial market ecosystem at different times and with different levels of intensity. However, what is important to understand is that the entire market ecosystem will be touched by an overreaction.
The Fed is overreacting with monetary stimulus.
The government is overreacting with fiscal stimulus.
The markets will overreact on the upside as a result of stimulus.
Investors will overreact to the market by allocating vast swaths of capital in an incremental fashion.
The economy will overreact to all of the above via what can only be accurately described as a drug induced frenzy as multiple waves of stimulus in various forms create a Q3 and Q4 surge in economic activity.
Layers upon layers of overreaction, all ending in a crescendo the likes of which we have never seen, as there has never been this confluence of factors all working in the same direction at once.
Here we are now beginning August. The overreaction element of this market is still the most misunderstood component of the current environment.
If overreaction was understood, all of the nonsensical, plebeian sentiment studies that have caused investors to miss out on nearly the entirety of this rally would have been discarded long ago.
If overreaction was understood, the worship of backwards looking economic data that does nothing to capture the essence of what is occurring in the current economy would have been ignored since April.
If overreaction was understood, all of the "unprecedented" technical studies that suggest this market was overcooked in June wouldn't be gaining the same, if not more traction, here in August.
The confluence of overreaction from all entities, whether government, central bank, institutional, individual, corporate or otherwise has never had a singular convergence quite like the one we are experiencing presently.
How would anyone in a correct state of thought even consider for a moment that the output from this confluence of overreaction can be anything but extraordinary scope?
It HAS to be extraordinary because failure is simply not an option.
I've been saying this March and I will reiterate it again here: The greatest thing to ever happen to equity investors is for the Fed and every other central bank globally to fear for their continued existence while having more than a decade of practice and thought with QE.
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