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A tough bear market wouldn’t be too high a price to pay for being rid of the massive excesses in debt and speculation that needs to be purged from the market, Michael Lewitt writes.
Lewitt, author of The Credit Strategist newsletter, advises investors to resist the urge to buy the dip, which is “deeply embedded” in markets, until the Fed starts tightening.
That urge was on display as the S&P 500 (SP500) (NYSEARCA:SPY) fell 5.3% in January and the Nasdaq (COMP.IND) (NASDAQ:QQQ) dropped 9%.
“According to data from VandaTrack, retail investors were net buyers in every day in January through January 27th and delivered higher daily inflows on average in January 2022 than in January 2021 on all but two occasions,” Lewitt wrote Tuesday. “And The Wall Street Journal reported that investors put $168 million into Cathie Wood’s Chernobyl Fund (NYSEARCA:ARKK) over the last week despite its 27% collapse through January 28th.”
“This mentality (a term that dignifies something that is bereft of any signs of intelligent life I can detect) is going to be extremely difficult to break.”
S&P 500 companies are still buying back stock at a record pace and “the issuance and repurchase of billions of dollars of stock is a massive Ponzi scheme occurring right under the noses of regulators and investors,” he added.
Now investors face a tightening cycle with inflation well above target and a political climate that makes it difficult for the Fed to rescue…
