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Kolanovic: The Tech Bubble Is Driven By Central Banks And Will Collapse; “This Time Is Not Different”
Kolanovic: The Tech Bubble Is Driven By Central Banks And Will Collapse; “This Time Is Not Different”
Having been a must-read voice of contrarian originality and market structure insight especially in the arcane realm of quant finance and derivatives for much of 2013-2016, about 3 years ago something flipped and JPM’s head quant, Marko Kolanovic abandoned his traditional skeptical perch and became ideologically aligned with the pro-central bank cabal of Fed apologists who refuse to see any signs of an asset bubble, claim the Fed can do no wrong, and generally mock anyone who warns that the injection of nearly $20 trillion in liquidity into the stock market will have a very unhappy ending. Kolanovic’s bizarre reversal went so far as to calling sites, such as this one, “fake news” as he continued to push for a bullish outcome to the debacle that was Q4 2018, if for all the wrong reasons (as this site explained repeatedly). In fact, Kolanovic’s forced transformation resulted in in-house confrontations with other JPM quants such as Nick Panigirtzoglou.
Well, in a world devoid of any logic or sense, some normality could have finally returned today when in his latest market commentary note, the real Kolanovic may be finally bacl, calling the market, or rather it best performing strategy – the low-vol/growth/momentum factor which is really just a fancy name for the handful of market-leading tech stocks- for what it is, namely one overinflated asset bubble, made possible by “central banks pushing global yields into negative territory (propping up defensive and secular growth/tech bond proxies), growth of passive indexation and momentum strategies (pushing assets into momentum, mega caps and low volatility stocks) as well as flows based on simplistic ESG schemes that just exponentiate the same crowding trends (e.g. very high correlation of ESG with low volatility, large size and momentum scores as well as sector concentration in tech).”
…click on the above link to read the rest of the article…
Kolanovic: “This Is What The Next Crisis Will Look Like”
Kolanovic: “This Is What The Next Crisis Will Look Like”
There are two distinct parts to the latest, just released research note from JPM’s quant “wizard” Marko Kolanovic.
In the first part, the infamous predictor of market swoons takes on an unexpectedly cheerful demeanor, and explains why contrary to his recent market outlooks, near-term risks for a market selloff appear to have abated. First, he looks at the tax-related rotations within the market in the past month, and notes that in September “the administration drip-fed US tax reform news, which propped up the market and spurred large sector rotations.” As a result, “financials, Industrials, and Materials were up ~5%, Energy ~9% and Small Caps ~7%. On the other side of the Tax trade were bond proxies (Utilities, Staples, REITs) down ~2-3% and Technology-heavy Nasdaq that was down ~0.5%. These offsetting sector moves reduced the typically elevated September volatility to its lowest level since 1964.”
He then goes on to note that in addition to the tax rotations, “volatility was reduced as market rose and got pinned at the 2,500 level for most of the month (this level was popular with option sellers, leaving dealers locally long gamma).”
Picking up on what Deutsche Bank’s Aleksandar Kocic has been writing about in recent weeks, namely the apparent failure of “exogenous shocks to shock the market”, as shocks themselves become endogenous phenomena, Kolanovic also writes that in fading daily headline risk, “tax reform and infrastructure will remain a central focus for investors, and it seems that bits and pieces of information can still excite fund managers”, something he previously called the ‘Trump Put’ effect.
As a result, between rotations and fundamentals, the coast – at least for the near-term – appears to be clear:
“With the upcoming positive Q3 earnings season, uptick in global growth, promise of tax reform keeping fundamental funds invested, and low volatility keeping systematic strategies invested, near-term risks of a sell-off have abated.”
…click on the above link to read the rest of the article…
