This market cycle has given us more than enough acronyms.
FOMO, which stands for “fear of missing out,” pushed many professional and amateur investors into risky asset classes. No one wanted to be the last person in on the next big thing while there was a lot of extra money floating around the world’s financial system.
There Is No Alternative (TINA) took it a step further. It summed up the idea that fund managers had no choice but to buy risky stocks because boring old bonds paid so little or even cost money to hold, and that was before inflation was taken into account. It means “the market made me buy this junk,” but the name is a bit sassier.
But it doesn’t look like we’ve reached the top of acronyms yet. Now that bond yields are much higher, TINA no longer exists (RIP), and the mood on the market has changed. Peter Tchir, head of macro strategy at Academy Securities, said this week, “We went from fear of missing out to fear of holding on.” I read a lot of research from banks and investors to make up for my sins. “From FOMO to FOHO” is something I haven’t heard before.
Tchir is talking about the feared bitcoin, which is, for lack of a better word, a “asset” that is getting better like a glass of full-fat milk on a hot summer day. If you haven’t heard about this week’s crypto drama (good for you! ), here’s what you need to know: the price collapse has changed from the stage where prices were falling, which started in November, to the stage where prices are dropping 10% a day and the platforms that let people trade in them start to freeze up and have trouble giving cash back to people who bet on the coins.
Bybit is a platform that offers “risk-averse traders” “low-risk savings” that can earn up to “999 percent annualised interest.” There are rules and restrictions. That is not a typo, but a sign that everything is fine in this very serious market that is not at all desperate for new cash, honest.
After this point, you start to worry about how a full-blown price collapse will affect other markets (the jury is still out on this) and what will happen when the venture capital, private equity, or even usually stable pension fund investors who backed these intermediaries start losing money. That will be exciting. But I digress.
The point is that cryptography has finally shown that it can do something useful.
Money for, you know, buying stuff? No. Place to keep money? Actually, no. Invest in inflation? No, not at all. But as the most speculative asset on the planet, and possibly the most speculative of all time, it seems like a good sign of bad things to come. The crypto equivalent of the “canary in the coal mine.” The big question is whether or not the FOHO that is affecting crypto will start to affect stocks.
It does not feel like we are there yet. Yes, stock markets have suffered so far in 2022. The stock market looks like it will have a terrible year this year. The S&P 500 index is in a bear market because it is down more than 20% from its recent high. Even the FTSE 100, which is usually safe from trouble because it has a lot of commodities in it, is down more than 4% this year.
Buying the dip is still a dangerous thing to do. The BlackRock Investment Institute said this week that US stocks have had their worst start to the year since at least the 1960s. “This has led people to say, “Buy the dip.” For now, we’ll pass.” Energy and labour costs could hurt profit margins, valuations haven’t dropped enough, and the US Federal Reserve could tighten policy too much for BlackRock’s taste. This week, the Fed raised the benchmark interest rate by a historic three-quarters of a percentage point. The Fed itself said that slamming on the brakes will cause “some pain.”
But even though few people are brave enough to buy more stocks when they are (relatively) cheap, many don’t seem ready to give up just yet.
Jeroen Blokland, who used to work at Robeco Asset Management and now runs the research firm True Insights, says that the S&P fell by almost 4% on a bad day at the beginning of this week. It is a lot. But he says that it is only the 39th biggest drop in one day since 2005. His indicator of how he feels is still in the neutral zone and not yet in the fear zone. His conclusion was: “No giving up.”
This week, a banker told me something interesting: when Bank of America does its monthly survey and asks investors if they are unhappy and scared, they say yes. The bank said this week, “The mood on Wall Street is terrible.” But if you ask them what they own, most of them haven’t sold off their favourite riskier assets. The banker says, “People are going to have to start selling the things they love most.” “There is still more giving up to come.”
There are signs of nerves. He says, “I’ve never had so much access to chief investment officers and CEOs.” “They want a conversation.”
That means investors are desperate for ideas and information about what might happen next and, oddly enough, what their peers are doing. No one wants to be the last one out of the stock market if FOHO hits.