A longtime investor, with whom we regularly communicate, described the market to us in an email today by sending along this picture.
For a more wordy description of the market, we think Sebastien Galy of SocGen captures what a lot of investors are thinking.
He sent this out in a client note tonight:
We are in an overshoot, we all know that we are in an overshoot but the machine continues to roll on until it eventually hits the wall and goes ugly. The standard tools of the trades are to look for exponential paths (accelerating past a trend channel), sensitivity of the market at high frequency to news to detect a shift in the mood (e.g. With the first us pmis or rise of oil linked to the middle east story). We are still long usdjpy, cadjpy and mxnjpy in the grand pre 2008 style risk taking of forgetting where your tail risk is. Everybody else is.
With the market making new highs, and the ECB and the Fed breaking new ground in what they will do to support the economy, etc., investors clearly face a dilemma between riding the risk rally whole hog, or trying to fight the trend and get run over while waiting for things to turn.
UPDATE: This from Dan Greenhaus’ Bedtime With BTIG note is apropos:
While there has been and will be plenty of time to comment further on the Fed/ECB shifts in policy, our conversations with clients in recent days indicates that investors remain torn between the Fed’s ability/desire to drive up asset prices and the belief that much has been priced in (admittedly, previous Fed easing programs came during periods of heightened risk aversion as compared to the generally risk on environment in which the current program was launched).