On the last trading day of this past week, the SPX reached an intra-day highest point. In normal times, when the US most valuable companies are at their highest valuation, it should mean that we are in a booming economy. As we know, it's not the case. What is booming is not the economy. What is booming is the money creation!
Last week, the volume of transactions on the SPX (SPY) was less than half its normal average making it the lowest in at least a decade. Yes, the highest point was reached with the lowest volume in a decade. Who is buying then? I give you a hint. Apple has a share buyback program of $385b (do you remember that Apple is worth around $1,000b?). That's an awful lot of buyback! Most largest US companies have a similar buyback plan in place, allowing the repurchase of a massive chunk of their company stock.
In addition to this, you have the money printing. We very recently had our European Whirlpool, and then our US double-down. This past week also saw the F$D, sorry, the FED, inject $120b daily liquidity in the market (just in case the company buy-backs are not enough to juice it). With all these daily injections, no wonder the market-junkie hit an All-Time-High. But again, on lowest volume ever (well, at least for a decade).
What it means is this: the Central Banks are printing at a rate not seen since the last recession. They are printing in advance, to amortize the effects of whatever nasty they either sense or already know is coming. The largest companies take the money (thank you!) most of the time as a several-decades-long loan at a rate of not-much-at-all percent, and use the money to buy back their stocks. In my world, it means they get nearly free money, and they decide to burn it instead of investing it. They do this because they (the CxOs with a big pay-check) have to show some kind of growth to get their big paychecks. But the growth is both not there and not in sight. By reducing the number of shares in circulation, they kind of automatically increase the price of the share, therefore show some kind of growth (the fool's growth, the stock price growth). Incidentally, they do not burn all the shares bought back, but keep a good packet for themselves under some kind of stock-option plans. Oh well, that's apparently called Capitalism, but I digress...
Where does this leave us? Well, I am not too sure. Screwed by the upside or screwed by the downside, that is not a very appealing menu. A bad recession starting at this stage of an already high national protectionism will not be good for world peace! I can see the trajectory, and it's not nice: it will be again the fault of the bloody immigrants, where-ever they dare to be.
Until we make more sense of all this, I leave you with a few last thoughts and facts.
I started to understand the magnitude of how the investment game is totally rigged around a decade ago, when I read that Goldman Sachs was hitting 97% win percentage on bad quarters, and 100% on good ones. Compare this with the fact that 90-95% of traders lose money. Those who rig the game act on priviledge information that the other 99.99% do not have. Like for example this anonymous person who bought 420,000 September Call Options in the last 30min of trading on 28th June. At the same time, the King of US was at a trade meeting and a few hours later announced the pursuit of good trade talks. The anonymous buyer made around $1.8b profit in just a few days. If Mr Anonymous had no wealth before entering this trade (which we can seriously doubt!), he or she would enter straight the UK top 100 Rich List, just on the basis of one single, but very well timed, trade indeed.
One trade => top 100 Rich List, and nobody can put you to jail. How cool is that? Incredible how it works, isn't it?
Well, another anonymous person (I'm not even suggesting they are related) just bought 50,000 April 2020 VIX $65 calls for $500K this past Friday. I translate for you: an anonymous someone is having a one-way bet worth half a million Dollars that the shit will hit the fan before end of April 2020. If this someone is right (who knows what information some anonymous and untouchable guys are able to collect 🤐), and if the fan gets as much "shit or blood" as in 2008 (the VIX got to 89 at the worst of the crisis), this anonymous person is making a bet to pocket a cool $500b. Even if the crisis is not that dramatic, and Mr Anonymous gets only a fifth of that, it would place this person as the richest guy on the planet. Just on the basis of one single trade of a mere half a million Dollars.
Priviledged information... What do they know that we don't? Is it really possible that by April 2020 the world will be upside down? I may buy a few April 2020 VIX calls on Monday morning! 😅
To your journey!