We start off this new trading year with an unmistakable speculative appetite that has pushed certain benchmarks of 'risk' - like the Dow and S&P 500 - to record highs. On the other hand, even committed bulls are willing to admit that underlying value and yield are stretched. To those willing to suspend disbelief, momentum seems reason enough to believe in climb into the foreseeable future.
Chart of USD/JPY (Weekly) (Chart 1)
Yet, I am of the mind that the market cannot ignore the expected risks and returns on exposure forever; and the options for further temporary salves (rate cuts, stimulus, backtracking on trade fights, etc.) are dwindling quickly. I freely admit that I have expected capitulation on risk taking to a greater degree than what we saw in the fourth quarter of 2018, but timing is always of critical importance. That timing is important if your target is the top performing measures of sentiment like US indices.
