“Buy the Re-Opening Rumor, Sell the Factual Horror”: 5 Reasons to Start Selling
The comments below are an edited and abridged synopsis of an article by Tyler Durden
The disconnect between markets and reality has reached crazy proportions.
In a report from Bank of America’s Jared Woodard, the strategist writes that equities “seem to have run too far ahead of fundamentals. From the March lows, stocks have gained $246,567 in market cap for each newly unemployed worker.” And while overshoots are always possible, he expects problems ahead for five main reasons:
1. Ignorance is bliss: One out of every five large companies has suspended earnings guidance;
2. Credit not confirming: after crashes, HY tends to bounce faster than equity; that’s not happening today on drag from ‘real economy’ sectors (energy/retail/industrials);
3. Companies are saving: One out of every five large companies either suspended buybacks or cut dividends;
4. Households are saving: private clients bought the dip but now sell rips and are net sellers since 2012;
5. Stocks are expensive: the S&P 500 trades at 19.4x earnings, a 20-year high; valuation favours credit.
Durden presents BofA’s arguments regarding why it’s time to sell the rally, and takes a look at how we got here, namely the deepest shock and the greatest response.
And what does BofA like? Gold. “Fed Can’t Print Gold: Gold is more attractive today. Our gold price target was just raised from $2,000 to $3,000/oz. Three reasons to buy: Low rates; a weaker dollar; and positioning is right.”
Also discussed: the trade war; the tech war; the capital war; and the energy war.