Euphoric growth of risky assets continues

05 / 02 / 2018
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Record bull bets continue to build on either stock, some currencies or commodities. Hedge funds and institutional investors are selling the US dollar and US bonds in large volumes and are taking on long positions on more risky assets.

Investment giant Goldman Sachs, however, warned this week that the sentiment is already extreme in several markets, and the best start of the year in global stocks could quickly end. At the same time we see one of the worst years for the US dollar and bonds. Therefore, there is currently no concern about the possible ending of the growth trend in the stock market and therefore we see sharp stock purchases. Analysts, however, already raise a warning finger that it is beginning to be unsustainable.

For example option traders are currently the most sophisticated growth of sterling over the past ten years, with investors using futures contracts being the most long-term euro in the history of the common currency.
At the same time, despite the rise in rates, financial conditions in the US are getting more and more relaxed, and companies are able to refinance under conditions we have not seen for 19 years. The rate of increase in rates is thus very slow and has no impact on the market. Until the Fed realizes, the bubbles (especially on the stock) will continue to grow.

The SP500 index has been nearly 8% higher since the beginning of the year, which is the best start of the year in the history of this stock index. The net speculative positions for stock growth are at 363,000 futures contracts, which is the most in the last five years. According to technical analysis and indicators, stocks are overdue for the whole time of existence.

The question then is when stocks can grow, with SP500 not recording a 1% correction for more than 100 business days. Euphoric growth will have to come to an end one day and we will see how sharp the correction will be.

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