Here is a Tweet discussion leading up to the correct answer which will likely surprise many.

Gaga Over Real Estate

Thinking back to 2005, I recall this magazine cover.​

Image placeholder title

Gaga Over Real Estate

Things do not get any better than Time Magazine going "gaga" over real estate, right on the cover.

The media reflects the mood.

I wrote about it at the time and accurately called the top even though sentiment is extremely hard to judge.

  1. March 2005: It’s a Totally New Paradigm
  2. June 2005: Home $weet Home Top Call
  3. September 2006: Updating the Arrow after Home Prices Drop

Gaga Over Tax Cuts

In January 2018, nearly everyone was giddy over Trump tax cuts and business investments that are not likely to happen.

In February, investors were so convinced stocks could not drop that they were shorting the VIX more and more every time the VIX rose.

Things finally snapped.

Inflation Sentiment

With nearly everyone so hell-fire convinced inflation is on the way, I propose Inflation is in the Rear-View Mirror.

Before anyone shouts that I have lost my mind, please read the discussion about what inflation really is and how things work in the real economy.

If the Fed reverses course will it be as bullish as before or will investors react as if the curtain was pulled on the Wizard of Oz?

Peak Equity Sentiment?

Have we seen peak sentiment in equities this cycle?

I do not know the answers to those questions, nor does anyone else, but valuation speaks for itself, as noted in Sucker Traps and the Arithmetic of Risk.



In regards to the VIX massacre, what happened? Inflation fears? Rate hikes? Anything?

You can conjure up a catalyst, but what really happened is there was a sudden sentiment sentiment change regarding the notion that being short volatility was a guaranteed smart thing to do.

Junk Bond Whales

Junk bonds and equities are correlated. They both represent risk assets.

​Four days ago I noted that a Mutual Fund Whale Goes "All In" On Junk Bonds.

Just like the VIX speculators, the junk bond whales have no concerns about valuation.

Image placeholder title

How does BST do market timing? The fund uses a computer program.

Bear in mind, many of the securities in the ETF are extremely illiquid. A credit manager informed me that "up to 90% of the bonds in HYG don’t trade on a daily basis."

What can possibly go wrong?

Buy the Dip!

With "buy the dip" so overwhelmingly pervasive, there does not have to be any catalyst for a sustained decline.

I strongly suspect there will not be one.

  1. Does anyone recall a catalyst in November of 2007, one month ahead of the Great Recession? If there was one, what was it?
  2. Does anyone recall Bernanke's denial on the housing bust?
  3. Does anyone recall Greenspan's worry the economy was overheating in summer of 2000, right before the dotcom bust?

Regarding question three, the FOMC minutes show Greenspan was concerned about overheating right before the dotcom crash.


What will change this time?


The same thing that changed in 2007 with equities, 2006 with housing, and 2000 with dotcom stocks.

The pool of greaters fools will eventually run out, and it won't take a recession or a drop in earnings (although both are coming).

Here's something to think about: Perhaps the pool of greater fools has already run out. If it has, when will you know?

Mike "Mish" Shedlock

Triple Tantrum: Stocks Sink, GOP & EU Outrage on Trump's Steel Tariffs

Trump announced sweeping new tariffs on steel and aluminum. The stock market threw a tantrum and so did GOP leaders.

Trump Tariffs Help Sink US Steel: Investigating a Trump "Big Win"

US Steel wanted Trump to put tariffs on Chinese steel imports. The company is not at all pleased with the results.

Counteracting Tariffs via Sinking Yuan: What Would It Take?

One of the ways China can counteract Trump tariffs is by letting the yuan sink. Let's explore how much.

Stocks Sink as Trump Threatens to Delist Chinese Firms

Hoping to force China to forge a trade deal to his liking, Trump threatens to delist Chinese firms from US exchanges.

Trump Tariffs Crush Small Businesses: "We Are at the Limit", Optimism Sinks

Small businesses, unable to make operational changes, are "at the Limit" of what they can take from Trump's tariffs.

Bond Market Dislocation: What the Hell is Going On?

The "Bond Freak" is wondering what's going on. I have an answer from Lacy Hunt at Hoisington Management.

Welcome Back! 5-Year Treasury Yield Sinks Below 2%

Hello one-handle: In response to Trump's misguided Tariff tactics on Mexico, bond yields continue to crash.

Trump Increases Tariffs on Turkey: Lira Plunges 18%, Global Stock Spillover

The Turkish Lira collapsed as much as 18% as Trump escalated his feud with Turkey over a detained US pastor.

Bond Yields Crash On ISM Report, More China Tariffs: Inversions Strengthen

The long end of the yield curve continued its post-FOMC decline on poor manufacturing reports and new Trump tariffs.