Hedge funds are no longer hedged.

The S&P500 and the DOW ended last week in negative territory, which was the first down week in 3 weeks. An interesting article that I read highlighted that US Hedge funds have never been more net long in US history than they are right now.

So that means the “smartest” guys in the room who are running these hedge funds are very optimistic and bullish. They have never been less hedged than they are today which makes them very risky. Usually, when you see people loaded up on one side of a trade it’s a pretty good indicator that the market is going to move in the opposite direction.

J.P. Morgan are now forecasting that GDP in Q1 will be a negative growth number at -1% and that the economy will roar back in Q2 and Q3. They’re looking for growth at 4% and 6.5% respectively.

One of the main reasons they think the economy will come roaring back after a contraction in Q1 is from massive government stimulus, which is driving the market. People are trying to figure out if the government are going to continue with this aggressive stimulus and lending programmes in the wake of these Covid vaccines.

Secretary Treasurer Mnuchin recently announced that they are going to be dialling back some of the fiscal stimulus, they want some of the money back that was available through loans and the government doesn’t want to fund this amount of stimulus.

An article from the WSJ highlighted that facts that some 300 companies had received PPP loans having already gone bankrupt and therefor clearly not going to pay back the loans. This is exactly what happens when you have asinine programmes that do not require any kind of personal protection and could be one of the reasons why they want to pull back on some of the stimulus. Furthermore, we are seeing more and more fiscally stimulated companies going bankrupt

The truth is that the cure for the disease has been more harmful for the economy than the virus. The real burden is the debt that has been incurred while fighting Covid and it will linger and continue to do damage even after Covid has gone.

This virus has caused balance sheets to become much bigger because of the debt and we also can see bubbles in stock markets and property markets. Economies are going to be less efficient, more indebted and more leveraged.

The cure for the economy has been the government stimulus but in reality, we need a cure from the cure! The economy is addicted to money printing.

You have to imagine that if Q1 does come out negative there will be a lot of political pressure for more stimulus and clearly, simply expanding the supply of money doesn’t make us wealthier. In fact, it’s harmful. Every dollar created by the central bank devalues the dollar in your hand. Money creation – inflation – means more money chasing the same amount of wealth. In the long run, that leads to rising prices. Nobody is really any better off. As things come back to equilibrium, you have more dollars, but it takes more dollars to acquire goods and services.

The continued and accelerated creation of money, while sold as a means by which we might create a better society, is more likely to lead us in precisely the opposite direction.

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