Saturday, January 25, 2020

How my "Sorcerer's Apprentice" trade got out of hand

Remember the story of the Sorcerer's Apprentice from Fantasia (click link for YouTube video)? Mickey Mouse played the role of a sorcerer's apprentice tasked to carry buckets of water. Instead of doing it himself, he stole the sorcerer's hat and animated a broomstick to carry the buckets for him. To speed up the work, he animated more and more broomsticks, until everything got out of hand.

While I don't claim to be a prescient genius who can see the future of the market, I was fortunate to spot the beta chase early. Bloomberg reported on December 18 that Stanley Druckenmiller had turned bullish, and Druckenmiller would not have gone on television to proclaim his embrace of risk if he hadn't fully entered into his entire position yet. As Kevin Muir at The Macro Tourist pointed out, "It is also probably safe to say that Druckenmiller, on the whole, is way ahead of most investors." In other words, the fast money crowd was stampeding into the reflation and cyclical recovery trade.

Nevertheless, the subsequent melt-up does feel a bit like a "sorcerer's apprentice" rally that got out of hand. Now the equity risk appetite seems to rolling over, and the steady advance seems to pausing on the news of the Wuhan coronavirus, what's next?

The full post can be found here.

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