What’s Going To Kill This Market?

In their recent episode of the VALUE: After Hours Podcast, Mitchell, Brewster, and Carlisle discussed What’s Going To Kill This Market? Here’s an excerpt from the episode:

Michael: I’m just going through this in my mind, what’s going to kill it? What’s going to kill it? What’s going to kill it? If you’ve read The Great Crash by Galbraith, it was written in the early 50s. It’s a great book. He talked a lot about how there was this belief in the 20s. When JPMorgan forced the banks to bail out the economy in the United States, I think it was in the [unintelligible [00:10:20] Twitter machine correct exact [unintelligible [00:10:23]. There’s a belief out there that when the Roaring 20s happened, that the banks would not allow the market to crash. That was in the psyche so that everybody was buying crazy real estate in Florida. That was one of the many Florida real estate booms that happened in this country. They were also buying stocks hand over fist, and the belief was, at least as Galbraith tells it, that most people thought that the market would not go down because the banks would step in and bail it out.

I wonder if what you’re really looking for is, forget everything else. The second there’s a massive drawdown and the Fed doesn’t step in with cash, that’s when you just get out of the way. In my mind, there’s this belief that if liquidity really dries up, you’ve got to put. That puts been there since 2008. So, it happened a couple of times. You’ve had a put from the EU, but put from the United States. If they step in and say, “That’s it. We’re just going to let the market shake out.” [crosstalk] buy.

Bill: Oh, yeah, you’ve got to sell everything.

Michael: That’s what would kill it. That’s what killed it in the 20s. Banks were like, “We’re not backing up your froth. This is froth. We’re not doing it.” There was no floor. That’s when the panic started. Everybody thought that it was impossible to lose money and it feels like that’s where we are right now. It’s like, “I can’t lose money,” because if liquidity dries up, the Fed will start buying ETFs. They did.

Tobias: Which they have — [crosstalk]

Michael: Yeah, exactly. You’re waiting on them to say like, “We’re not doing that anymore.” Nobody’s going to believe it until the stress happens, and then they don’t show up. [crosstalk]

Tobias: Do you think that there’s any chance that they don’t show up being realistic?

Michael: I guess the answer to that is no. So, I going to go– hold on, I’m going to buy some AMC calls here.

Tobias: [laughs]

Michael: I’m kidding. Don’t buy AMC calls. You can buy them, I don’t care.

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