Dreaming of bubbles…

2020 was the best year for IPOs since the dot-com boom. There are indeed signs of potential exuberance popping up. Despite the ongoing COVID-19 pandemic, the number of IPOs in 2020 was record, making it the biggest year for IPOs since the 90’s Tech boom, according to Refinitiv.

JPM Equity strategy

The 5 major financial bubbles since the 18th century have seen their relevant asset class rise by an average of 1400% before the crash. So, do not worry, if your particular position is not up 1400% yet you are fine, nothing bad will happen – just keep on buying.

JPM Quant

CITI strategist sees a bubble, (perhaps) but argues it can get much bigger. It is a new chapter in the “bubble bubble but absolutely no trouble” book that the market currently is writing. CITI: “Global equities are looking increasingly frothy, but current performance and valuations still lag previous mega-bubbles. The NASDAQ now trades on a CAPE of 58x compared to 113x in 2000, and Japan’s 83x in 1990. Investors worried about excess valuation should look outside US equities. And there is no bubble versus bonds. Past equity bubbles hit much higher valuations than now, but with bonds at 5-6% not 0-1%. Bonds were an obvious alternative once those bubbles burst. They are not now. And bubbles don’t burst easily. Perhaps equities are currently vulnerable to any hints of higher rates or QE tapering from central banks. But history suggests that bubbles can inflate even as rates start to rise. They are much more robust than we all think…”

GS “most severe downside risk is the evolution of a vaccine-resistant virus strain that would require a new vaccine and another round of vaccination. In this scenario, progress toward herd immunity from current vaccination efforts would be lost or severely set back. If a vaccine-resistant virus evolves in 2021, we would expect a much slower recovery relative to our baseline because consumers would pull back spending in virus-sensitive sectors that should otherwise reopen as the population approaches herd immunity”

Goldman

As Nordea points out:

“When China started rebounding during the early spring of 2020, Europe followed and so did reflation trades with a weaker USD and higher inflation break-evens as two of the key examples.”

Everybody remains extremely bearish the dollar. As we showed on Sunday, net dollar shorts reached another extreme. Most of the dollar short is versus the Euro, that people for some reason still love.

Nordea

European cases surging and lock downs in full motion across the continent. One of the ironic events over the weekend is Sweden closing the borders to Norway.

V2X is currently putting in the biggest up candle since mid September, +14% on the day.

Maybe that deja vu feeling becomes reality…

Refinitiv

People love calls, but not only do they love calls, they hate puts so much so they have shorted puts. Second chart shows one of the bigger issues with this market (and we are not talking Gamestop). Liquidity is awful and you can’t execute large trades in an efficient way.

Long gamma remains king….

Spotgamma

JPM

As we have been pointing out for weeks, Russell volatility, RVX, has been well bid for long and remains well bid. Small cap “VIX” is trading at levels last seen in early November, just when the rotation chase started.

Obviously, RVX here does not mean we must crash to November levels, but Russell risk is trading very stressed. Given where we trade, overwriting strategies offer good “value”, especially for the crowd that “must be long” here.

Refinitiv

Morgan Stanley Cross-Asset Strategist, Andrew Sheets: has a word to the wise: “…sentiment measures are better at identifying buying opportunities than market tops. One reason may be that the nature of the events that cause investors to panic means they panic together, creating a strong impulse that leads to an investable low. Optimism, in contrast, is more diffuse and has a harder time producing such a singular moment.”. There is of course a plethora of sentiment and positioning indicators that scream “excessive” right now…..maybe the greatest trick the bear-devil is doing right now is to convince the world he does not exist…