Stocks were doomed.
Going into the summer of 2007 everyone was long stock. To add to waning momentum, Wall Street had already exploited all the low hanging fruit in the form of mortgage transaction fee bundles. Unfortunately, what was left were lots of notes which would become an avalanche of failures.
The industry was near empty as it sat at the top and looking for the next big catalyst to move markets. Stocks needed something to keep them in first place. What they did not realize was that the next big thing would come at the end of the biggest financial failure in the history in modern times. In absolute terms, dwarfing the Great Depression and bringing about the largest wealth transfer in global history.
So here we are in record new territory for stocks. What will kill this rally and start the next big thing?
Well the diagnosis for down is always too much up. The symptoms are characterized by an inability to slow a dramatic sell off brought on by the thing that brought you there. And what brought us here. Everyone might say the Fed. But the answer may be more of a structural price function unrecognizable in form and seriously different than what our collective cognitive bias would believe.
What is the collective bias? Probably zero rates equals higher prices for shares. The structural price function may be the carry trade from Fed to corporations replacing broad share ownership by the public. These record highs have less shares, less volume and are considerably thinner.
