Thornton: The Market is a Little Too Hot

Your Real Vision Daily Briefing for June 17, 2020

Senior editor Ash Bennington joins Tommy Thornton, founder of Hedge Fund Telemetry, to discuss the latest in markets, macro, and coronavirus.

  • If the market was in good shape going into the pandemic, it would have survived without trillions of Fed stimulus.
  • There likely won’t be new stimulus programs if the market gets weak in the fall because the Fed doesn’t want to influence the election.
  • The market has become a speculative bubble and that can be very dangerous; risk management and position sizing are essential.

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The need for intervention in repo markets starting back in the fall of 2019 indicated that the markets weren’t healthy going into the coronavirus shutdown. If they were, the level of stimulus markets have received would’ve been unnecessary, Hedge Fund Telemetry founder Tommy Thornton told Real Vision during today’s Daily Briefing.

Thornton said that the pandemic exposed a lot of structural issues and market fragility and he can’t believe where the markets are now as a result of the stimulus. But despite the incredible rally, he thinks the Fed may be blowing up a bubble that will be worse than what happened earlier this year.

He believes we’ll soon see a top of some sort, as there are a number of events coming up over the next few months that could have a negative impact. The real risk is in the second half of the year, he said, and though the Fed is all in now, he thinks it will avoid adding new stimulus programs in the fall if the market gets weak so as not to affect the election outcome.

In the meantime, Thornton said he believes people have priced in beyond the recovery on a lot of stocks and we’re going to have to reset earnings expectations, as Q3 will likely be a tough one.

“The market is a little too hot – it’s way ahead of itself,” he said.

The current situation of speculators chasing stocks that are at or near bankruptcy while there’s no basis for them going up reminds Thornton of the dot com bubble. You can make money and that’s the lure, he said, but it often ends abruptly and can have devastating outcomes.

Bad sizing and leverage have always led to the biggest blowups, he said, so traders should pay attention to risk management and position sizing to protect themselves in this environment.