Pulling Forward The Future Never Lasts

Posted | 14/03/2019 / Views | 1026
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Last night saw decent gains on Wall St, lead again by tech shares.  However last night continued a recent trend of a disconnect between shares v bonds and gold.  Ordinarily you would see bonds and gold fall when shares are rising, the former being ‘risk off’ and latter ‘risk on’.  Again last night we saw bonds hold and gold rally (up over US$1300 again to $1310).

Pulling Forward The Future Never Lasts

Importantly the S&P500 yet again couldn’t sustainably breach the 2815 mark, reaching 2820 before retreating to finish at 2814.  This is the 5th time it’s bounced off it.  Last night was notable too for a lack of volume in shares.  It simply wasn’t a widely traded rally.

So why is the market ‘not buying’ this share rally and piling into safe haven assets in step with higher shares?  It’s the so called ‘quad witch’ and this occurrence is explained by Nomura’s Charlie McElligott as follows:

“The impending expiration of options contracts is fuelling the purchase of those stocks as owning options becomes ever riskier as the expiration day approaches, a process called “rolling out.”

Options-related buying “is syncing up with corporate buyback flows, which typically run at a massive pace this week as well, ahead of going into a ‘blackout’ by next week,” McElligot wrote, referring to a period of when companies and corporate insiders are prohibited from repurchasing their own shares in the month before the release of their quarterly results.

“This demand double-whammy” are the “two largest catalysts” for the stock market’s upswing this week, he added.”

The thing is, history shows the week after quad-witch events sees those gains lost and often by much more.

Whether its Aussie property, our whole debt funded way of life (public and private), or in this case shares; when you artificially pull forward future demand or expenditure, you inevitably leave a hole in the future.

It’s arguably why precious metals look like one of the only assets you can buy that aren’t overvalued by artificial forces.  Market forces, arithmetic, natural order, etc, mean inevitably the there is a rebalancing.  Today’s relatively low prices in gold, silver and platinum would therefore seem to be limited in availability….