Journalist: Wall Street got scared, gave control to the pessimists, and fell 5%… And now it refuses to continue down that path. Rather, launch a counteroffensive. What happened? Did the scare go away?
Gordon Gekko: It’s in the genes. And in history. This is a bull market until proven otherwise. Any decline should be seen, in principle, as a buying opportunity.
Q: Okay, but does it have to be so fast?
GG: Everything sped up. War and the sky covered by drones in the Middle East. Last week’s skate. The pineapple of Netflix, Nvidia and Super Micro Computer. It is natural that the counter-reply also hastens.
Q: Deep down, you still have an optimistic vision.
GG: That’s right. That is, with the same logic that he took us out of a bear market and brought us to these heights. Nothing was broken here.
P.: Except that we are playing with fire. And on the ledge.
GG: The problem, if you will, is looking down. And suffer from vertigo. But the disorders are either minor issues or are those that we already overcome to climb and destroy records. Right or wrong, living with these dangers is already a decision made. And that didn’t change.
Q: How serious is a war between Iran and Israel? It looks terrible.
GG: That may be why it is practiced (with care not to exceed it), but it is not declared. And the price of crude oil fell with the drone excursion. To make matters worse, it rose with a bad number from the PMI report, a second-order anecdote, but one that gives rise to speculation again that the FED wants to lower rates later. Before the end of the year.
P.: It’s like the priorities are reversed.
GG: Nobody believes, not yet, that the world is going to ruin. Not even the investors who reduced their exposure. The idea that drives them is to tactically avoid a correction that they saw imminent.
Q: Peter Lynch, the legendary manager of Fidelity, said that investors have lost more money preparing for corrections, or trying to anticipate them, than what was lost in the correction episodes themselves.
GG: It’s not bad to keep it in mind. She said it correctly. And time, far from contradicting him, proved him even more right.
Q: What subtle element vibrated in the air so that Friday’s fear was transformed this week into a decision to take risks again?
GG: Last week, when everything seemed to be melting, several hedge funds canceled their long-standing bets against the stock market. Today the consolidated position is long the S&P500. Rushing to buy ties into the idea that there is not too much leverage. The rebound, thus, can be anticipated. They are decisions, in short, that are adopted with an eye on the volatility readings, the stock VIX and the MOVE that measures the scare in the bonds.
Q: The eye is often an algorithm.
GG: Yes. Bonds have been more informative than stocks lately: Seeing long rates calm down helped. And the VIX followed in its footsteps.
Q: What can we say about the information that flows? Do we know something new that allows us to be more constructive?
GG: The balances are good. Even Netflix, what was bad was its decision not to disseminate its subscriber metrics. In other words, the implicit guidance behind that initiative. But balances allow us to be constructive. 76% of them, so far, exceeded expectations. So much so that, as they are coming in large numbers and in the star technology sector, investors prefer to resume positions before they spread.
P.: And not afterwards as would be logical in the middle of a quake.
GG: Correct.
Q.: You put a lot of emphasis on the possibility that inflation, measured by the March consumption deflator, will show a much better reading this Friday…
GG: It’s a point. Which was more important if the market decline did not stop sooner. Let’s first have the initial estimate of GDP growth between January and March. It should be a solid number and with a bias towards being very robust and close to 2.8%-3%. But we have already received preliminary activity data for April. The aforementioned PMI. And the second quarter seems to have started softer. And with lower inflationary pressures too. Nothing that stirs up the waters too much.
Source: Ambito
