You gotta dance
The most-famous line of the financial crisis came from Citigroup CEO Chuck Prince who said:
"As long as the music is playing, you've got to get up and dance."
His comment was about leveraged lending but it took on a life of its own and was attributed to mortgage lending, CDOs and a dozen other examples of the excesses that ended in a Wall Street bailout.
The comment lives on because it's such a fine example of how financial markets work. They're a party when the times are good.
That's why the most-famous line about the Fed is from William McChesney Martin who in 1955 said a central bank was a "chaperone who has ordered the punch bowl removed just when the party was really warming up."
In this era, the Fed is the drunk at the party pouring another bottom into the punchbowl. If there was an adult in the room, I would be the first person heading to the coach check but there's no sign that Powell even understands the party he engineered.
We have central banks determined to goose inflation and politicians who have discovered the electoral power of runaway spending. Add in Robinhood traders who have fallen in love with options and it's Ray Dalio at Burning Man.
The coronavirus looked like a reckoning but it's turning int an excuse for every excess to explode. The emotion in the market right now is insane. It's gone from fear to greed at an never-seen-before pace and with no one to take the punchbowl away, I don't see it ending.
I continue to closely watch the coronavirus and I'm as scared as anyone about a second wave. Panama re-closed its economy today after a spike in cases. India hit a record number of daily cases, just shy of 10,000. In the US, cases in Arizona, Utah and North Carolina are rising fast.
Given the millions of people in the streets and the effective end of social distancing, it probably ends badly.
But the music is drowning out the message. It's saying the virus is mutating into something less deadly, that summer will kill it, that science will win, that only the old are at risk (and who wants them at a party anyway?). Look around, it's Times Square in 1999 in risk assets. You can listen to the guy moaning about social distancing or the one who just doubled his money in shares of American Airlines in three days.
The examples are almost as extreme in FX with the euro climbing 9 days in a row until a small dip Friday. The New Zealand dollar is riding a seven-day winning streak. The moves in yen-crosses have been extreme.
People are still pouring into the party. Investors have missed out on this rally and hedge funds are just arriving and they have the best drug of all -- leverage.
I don't trust anyone to judge when this party will end -- Wednesday's Fed decision is certainly a risk -- but right now the music is playing and it's the party of a lifetime.
Here is the simple case for buying everything right now.
You don't need to believe in a market to make money off it. What you need to do is manage risk. No matter how good this party gets, remember that.
