How All Financial Markets Turned Into The Same Big Trade

Joe Weisenthal (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, I liked one of your tweets this morning.

Tracy Alloway (0:20)

Ha ha, which one?

Joe Weisenthal (0:22)

No, I mean, they're all good. I like all your tweets, but I liked your chart comparing the share price of Tesla with the price of the cryptocurrency Ethereum and how closely they've tracked each other this year.

Tracy Alloway (0:37)

Yeah, you know I have a history of finding spurious correlations between cryptocurrency and other assets. The most famous one being Bitcoin and avocados. But I have to say, the Tesla versus Ethereum chart, I'm not sure it's actually that spurious a correlation. I think there's something there.

Joe Weisenthal (0:56)

Yeah, I mean, I do too. And I was exactly gonna say, I think the infamous Bitcoin, price of Bitcoin versus the price of avocados one, that one was probably spurious. But I actually think that when you look at something like Tesla and Ethereum, it's not as spurious as that one was, or maybe people think. And in fact, there are like a lot of charts that all kind of look like that these days, even though they seem to be in very different asset classes and with different fundamental theoretical drivers.

Tracy Alloway (1:28)

Yeah, I think you tweeted one recently as well, which was, wasn't it lumber versus crypto of some sort, versus Tesla as well? And it was all moving in the same direction?

Joe Weisenthal (1:38)

Yeah, there's like a bunch. So it's like gold and Tesla and lumber and cryptocurrencies and just like a bunch of other stuff.

Basically, all these charts sort of look the same these days. It's very strange. And a lot of people have been saying this, but it feels like everything is sort of all one trade right now.

Tracy Alloway (2:00)

Yeah, and I think this gets to some of the frustration in the market currently, which is that the same things keep increasing in value, notably the tech stocks. And lots of people think that that shouldn't be happening, that that's irrational, that at some point, the price movement should become self-limiting, i.e. the stocks themselves should become too expensive.

And yet they just never seem to. People just keep buying and buying and buying and pushing up the valuation.

Joe Weisenthal (2:27)

Yeah, and I think the other weird thing is that like, you know, you look at say like tech stocks flying to the moon and it's like, this is what people would call like risk on, right? So people's like, this usually is associated with, you know, when you see valuations go up and you see stocks go up, one typically associates that with boom times. But the weird thing is also the simultaneous rally in assets that one doesn't associate with boom times. So gold obviously has had an incredible year, it's come off the boil a little bit lately.

Treasuries have had an incredible year, although they're sort of like maxed out because rates are at long end, treasuries are at zero.

So you have this simultaneous boom, not just in risky assets with different fundamental drivers, but also a weird like boom in safe haven assets and risk assets at the same time. And I think that's the part that really sort of throws people loop like gold and Tesla both looking the same. It's strange.

Tracy Alloway (3:27)

Yeah, it's strange. Although I have a feeling that a lot of people would point out the role of central banks in this and the flooding of liquidity and the idea that money has to work its way into some sort of asset, whether it's a traditional safe haven or something like a tech stock. And of course, some people are calling tech stocks safe havens now, which is kind of crazy compared to 10 years ago. But anyway, yes, it's a big theme in the market and I'm looking forward to this discussion.

Joe Weisenthal (3:53)

Great, so we are going to be talking about how everything has just become one big trade. Our guest this week is a really brilliant guy. I've loved reading his stuff for a long time. Jared Woodard, he is the head of the Research Investment Committee at Bank of America and he recently wrote a note exactly on this, the all one trade in this of the market. So Jared, thanks so much for joining us.

Jared Woodard (4:18)

Yeah, I'm really glad to be with both of you. Thanks so much for having me.

Joe Weisenthal (4:21)

So it's not just our illusion, right? I mean, it really does seem like everything is kind of the same right now. Is there, A, is that true? Is there an easy way to sort of demonstrate it quantitatively that it is all the same right now? It's not just sort of us playing tricks with terminal charts?