Have We Hit The Top?

[UK]

https://www.bloomberg.com/news/articles/2023-08-25/stock-rally-has-a-ways-to-go-before-americans-feel-rich-again?srnd=premium-europe#xj4y7vzkg

 

Equities rose for the first time in four weeks, with the S&P 500 now recovering roughly 65% of last year’s bear-market drop. Factor in inflation, however, and the size of the retracement is less — only about 45%, adjusting for the consumer price index. Plotting the S&P 500’s value against nominal gross domestic product shows a similarly paltry recovery compared with the size of the economy, according to data compiled by Doug Ramsey at the Leuthold Group.

 

Edited August 26, 2023 by UK

[UK]

https://www.bloomberg.com/news/articles/2023-08-24/bond-market-flashes-warning-as-us-budget-deficit-surges

 

American politicians are keener than ever to juice the economy with government cash, a shift that’s already helping to drive up borrowing costs and looks likely to keep them high long after the inflation emergency is over. The outlook for the federal budget right now is essentially unprecedented—crisis-size deficits as far as the eye can see, even though the economy appears to be in good health. That prospect is making investors uneasy, as demonstrated by yields on benchmark 10-year Treasuries climbing above 4.3% this week, their highest levels since 2007. Other borrowing costs are rising in tandem: The average rate on a 30-year fixed mortgage has surged above 7% for the first time in more than two decades.

...

In a strong economy with low unemployment, American politicians “really have no impetus to think they need to change anything,” says Oksana Aronov, head of market strategy for alternative fixed income at J.P. Morgan Asset Management. “You have a tremendous amount of fiscal spending—an unprecedented amount in non-war times. There are a lot of factors coming together to push long-end rates higher.” The consequences stretch beyond the $25 trillion Treasury market. American housing is now less affordable than at any time since the 1980s, and it will become even less so if rising yields on US government debt pull mortgage rates north of 8%. Stocks may also suffer, since higher financing costs for corporations eat into profits. “History tells us that no asset class is really going to escape this entirely,” Aronov says.

...

For all the fretting, it’s hard to map out a path that leads to a full-blown bond meltdown in the US, like the ones that threatened European economies last decade and are commonplace in emerging markets such as Argentina. Not only does the US borrow in its own currency, giving it the ability to print more money in a pinch, but Treasuries—despite what ratings firms say—still represent the strongest of global safe haven assets, which ensures that demand for them will remain robust until an attractive alternative materializes. Also, economists have been raising the alarm over the level of US debt for decades, arguably undermining their case with vague and premature warnings of doom. “It’s not clear at all that we can identify in advance a particular level of federal debt that would trigger a crisis,” says Karen Dynan, an economics professor at Harvard. “There’s no consensus among experts.”

 

Edited August 26, 2023 by UK

[UK]

https://www.investing.com/news/stock-market-news/hedge-fund-exposure-to-7-biggest-tech-stocks-at-record-high-goldman-sachs-says-3162770

 

"The primary objective of hedge funds is to generate returns, rather than to be imaginative for the sake of diversification,"

 

I think this is quite true. Not sure about the application on M7 at this time though:)

 

[Spekulatius]

Dataroma has an interesting chart showing ( hedge? )fund exposure sorted by ticker symbol:

https://www.dataroma.com/m/grid.php

[Spekulatius]

Software Ponzis, SillyCon Valley Style:

https://x.com/laurenbalik/status/1696562499447935006?s=61&t=E8YgOMPn5yLNAJ40xrQKFQ

Edited August 30, 2023 by Spekulatius

[UK]

https://www.bloomberg.com/news/articles/2023-09-09/wall-street-fears-a-too-hot-economy-as-recession-bets-plunge?srnd=premium

 

From high-yield credit to equities, the odds of an economic downturn priced into financial assets have fallen to the lowest since April 2022, according to JPMorgan Chase & Co. It’s a big reversal from the doom and gloom of the past year, when a recession was effectively seen as a done deal. That means markets are increasingly at the mercy of economic news that signals another bout of rampant inflation, spelling trouble for interest rate-sensitive strategies. For many investors, positive economic data — and its potential to spur more policy tightening — is the headwind they’re fighting.

...

“I think markets are going to be skeptical of recessions until they see the whites of its eyes,” said James Rossiter, head of global macro strategy at TD Securities. He now expects a US economic contraction early next year, after being caught out this year. “Too many times this last year or so, people like me have cried wolf on recession forecasts, only to see the world turn out better than feared.”

[Sweet]

The people calling for a recession and stock market crash this time last year were fixated on some data mined figure that stated “we never had x without a major recessions” or “a stock market correction has always followed y”.  We had a recession and sure a lot of the excess was trimmed during covid.  To expect another massive blow out for the economy seemed unlikely then and now. 
 

[Gregmal]

And of course what does this “analyst” do? Moves the goalposts for his recession prediction back another 6 months lol. 

[Gregmal]

And the “never in history” stuff was just so fundamentally lazy because it refused to consider content. If we have short term, COVID caused inflation obviously short term rates will be higher than long term rates. And by the way, never before in history had we had COVID before either. This is just one of the million problems with trying to be a macro expert. 

[Malmqky]

There's a Buffett quote that goes something along the lines of "You can't use past recessions/events to predict how the future will play out; people will act differently based on the previous time". I think this kind of extends to everything - people DO learn a bit believe it or not. Everyone knows what happened last time we had inflation like this, last time the fed raised rates so quickly, last time tensions were like this between two countries, etc. Hence why history rhymes and doesn't 100% repeat.

 

Buy individual value, mostly ignore macro, and completely ignore analysts.

Edited September 10, 2023 by Malmqky

[Luke]

19 minutes ago, Malmqky said:

There's a Buffett quote that goes something along the lines of "You can't use past recessions/events to predict how the future will play out; people will act differently based on the previous time". I think this kind of extends to everything - people DO learn a bit believe it or not. Everyone knows what happened last time we had inflation like this, last time the fed raised rates so quickly, last time tensions were like this between two countries, etc. Hence why history rhymes and doesn't 100% repeat.

 

Buy individual value, mostly ignore macro, and completely ignore analysts.

Good Quote I read in an article about that phenomenon:

 

"Setting aside the magical interest rate’s non-existence, capitalism’s natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that all prices magically adjust until they reflect commodities’ relative scarcity. In reality, they do not. When investors learn that the Federal Reserve or the ECB is thinking of reversing its earlier intention to increase interest rates, they worry that the decision reflects a gloomy outlook regarding overall demand. So, rather than boosting investment, they reduce it."

[james22]

2 hours ago, Gregmal said:

And by the way, never before in history had we had COVID before either.

 

Worse, we've had similar before (SARS, avian/swine flu, etc.) which played out differently.

[SharperDingaan]

Your best 'forecast machine' is your gut; & listening to what it is telling you.

 

Shine the turd all you want ... but Chinese demand is slowing, and not coming back to historic year-on-year growth for quite some time. Simply because their economy is a lot bigger than it was, and their systemic problems are getting a lot worse ... not better. OPEC+ doesn't voluntary extend supply cuts because it wants to .... it cuts back because it has to. 

 

The Feds want a slower economy, to lower inflation. Markets only rise if the Fed screws up (have to intervene with a rate cut); if they don't, markets continue to pull back .... as the Feds intend. A bear market bias, plus an out-of-market call in case you're wrong.

 

The closer the US 2024 election gets, the more uncertain/dysfunctional the market becomes, and the more the market sells off. Bear market bias, plus calls relying on Trump saying something provocative to get elected.

 

Add it all up; if you aren't hedged, you're betting on failure (Fed) & disruption (Trump) to make your numbers. Great trading position, but not so much for most everyone else.

 

SD

Edited September 10, 2023 by SharperDingaan

[Gregmal]

The most bizarre thing was that when COVID first hit, everyone and their mother was like omg supply chains are gonna get fucked, and hard over the next few years. Then that plays out and half those people for some reason thought inflation was fueled by other stuff. Mainly the biggest bias I’ve ever seen, the “money printing bubble from 2014” thesis.
 

It didn’t take a rocket scientist to see that shutting shit down, paying people to stay home, etc, would create inflation. And it shouldn’t have taken a rocket scientist to see ending that, would end inflation. The only trick, which wasn’t even that hard, was timing the lag and accounting for the capitalist aspect relating to pricing power. The stuff that didn’t hold pricing power, went right back to normal. Stuff like housing and Hershey bars, held better cuz no one wants to live in a tent or eat store brand candy. 

[Luke]

 

Some thought provoking graphs about the state of consumer buying power:

 

 

 

 

 

 

 

 

 

 

 

[Gregmal]

Yup. The Fed officials are not even hiding it. They think wage growth for the average person is unacceptable and the jobs market should favor big companies. 

[Castanza]

36 minutes ago, Luca said:

 

Some thought provoking graphs about the state of consumer buying power:

 

 

 

 

 

 

 

 

 

 

 

Dropping the gold standard also happened in 1971 fwiw

[rkbabang]

29 minutes ago, Castanza said:

Dropping the gold standard also happened in 1971 fwiw

Yes, you can see the early 70s inflection point in almost every long term financial chart you look at.  The dollar was doomed from that point on. We are just playing out the inevitable.

[Spekulatius]

Interesting observation on the gold standard and I agree it was a major infliction point. I think some folks rightly point out that abandoning the gold standard was like ripping off a band aid. Unfortunately if you are bleeding from a wound and rip the band aid off, the bleeding increases.

 

There is also the theory that abandoning the gold standard let to the first oil crisis in 1974 as the Arabs then got aware that they were getting screwed over inflation and decided to put the squeeze on.

 

FWIW, they are doing the same right now, just piece meal with supply reductions, while also trying to dump $50B worth in Aramco stock. They definitely have gotten smarter over the years.

[Guest]

Not trying to get political but it's easy to see why things are getting so extreme these days with those charts. 

[Gregmal]

3 minutes ago, stahleyp said:

Not trying to get political but it's easy to see why things are getting so extreme these days with those charts. 

LOL now imagine telling those people that we're gonna embark on a multi year crusade where we attempt to "solve" the problem by giving even more free money to those with assets, at the expense of wage growth for the other 95% of folks? Yes, this is really happening. 

 

Anyone seen the rates for a used auto loan lately? Definitely helping the little guy! 
 

[Guest]

13 minutes ago, Gregmal said:

LOL now imagine telling those people that we're gonna embark on a multi year crusade where we attempt to "solve" the problem by giving even more free money to those with assets, at the expense of wage growth for the other 95% of folks? Yes, this is really happening. 

 

Anyone seen the rates for a used auto loan lately? Definitely helping the little guy! 
 

 

Yeah man, I think this is a very dangerous game they are playing. The next bear market or the one after may make 2008 look like a walk in the park. America, as a whole, seems to be splintering. I hope it doesn't get worse...but fear it will. 

[Gregmal]

4 minutes ago, stahleyp said:

 

Yeah man, I think this is a very dangerous game they are playing. The next bear market or the one after may make 2008 look like a walk in the park. America, as a whole, seems to be splintering. I hope it doesn't get worse...but fear it will. 

I personally dont think it gets nearly that bad. At least not for asset values. But again, mainly because what they are doing has been so well orchestrated to the people with wealth. Everyone who is just waiting; now they are getting 5% freebies while they wait for vacation homes and bragging rights associated with getting bargains when those just trying to hang on puke. 

[Blugolds]

7 hours ago, stahleyp said:

Not trying to get political but it's easy to see why things are getting so extreme these days with those charts. 

 

You're exactly right, people feel the charts impact but cant pinpoint the cause. Its the lobsters in the pot blaming the other lobsters for the heat rather than the chefs. So the red team blames the blue team and the blue team blames the red team and none neither team will better their situation. 

 

7 hours ago, Gregmal said:

I personally dont think it gets nearly that bad. At least not for asset values. But again, mainly because what they are doing has been so well orchestrated to the people with wealth. Everyone who is just waiting; now they are getting 5% freebies while they wait for vacation homes and bragging rights associated with getting bargains when those just trying to hang on puke. 

 

Yup I agree, the raising tide lifts all boats! As long as you've got a boat! If you're treading water with a cinder block for an ankle bracelet you're in trouble. When all hope is lost and you've got nothing to lose, thats when it gets wild. The frustration of the people is real they just arent sure where to direct it. If you look at many of the "problems" in the country its all tied to $$. 

 

There is nothing wrong with money, capitalism, wealth etc. And it is not synonymous with greed. This is all a well orchestrated plan that has been going on for decades, I just wonder how long they play the game before those losing the game have nothing left to lose. If I was in the .05-1% I'd be worried about how far you could push the common guy. But my guess is, by that point they dont care, because the game has been in their favor for so long that there is really nothing the little guy can do that they cant mitigate with their checkbook, even if that means moving, hiring security aka police/military etc..

 

 

[Luke]

56 minutes ago, Blugolds11 said:

There is nothing wrong with money, capitalism, wealth etc. And it is not synonymous with greed. This is all a well orchestrated plan that has been going on for decades, I just wonder how long they play the game before those losing the game have nothing left to lose. If I was in the .05-1% I'd be worried about how far you could push the common guy. But my guess is, by that point they dont care, because the game has been in their favor for so long that there is really nothing the little guy can do that they cant mitigate with their checkbook, even if that means moving, hiring security aka police/military etc..

Well put, the little guy thinks capitalism is the problem while that was the only system ever that provided wealth over time to all, IF it works. It all starts going downhill if business gets too much power, congress gets inefficient and corrupt, and wages don't follow with growth. If wages stagnate, demand stagnates and then investment stagnates-->

 

What are we seeing in the stock market? All-time high profit margins+above average multiple, average worker not taking part in wealth creation, continuant strengthening of business via acquisitions and mergers instead of investment, buybacks instead of investment and growing financialization. 

 

People don't know what to vote for anymore because things are promised (Obama, Hope&Change, ironically won an award for best advertising presidential campaign) but don't materialize in better living circumstances. 

 

Once capitalism gets so out of balance and the state can be bought, you will observe rising depression rates/rising hopelessness (already happening), rising medication and drug usage (20% of EU citizens on psychiatric drugs/opioids, self-medication, antidepressants and what not because they can not cope with reality), rising extremism (fascist movements, radical youth gangs (climate activist that destroy buildings etc.) and more and more violent protesting (france). 

 

To get out of the misery IMO we need a competent intervening government that starts increasing spending on public infrastructure (schools, teachers, investment in disregarded neighborhoods, public transportation, digitalization), immediate strengthening of workers via unions/organization, public housing, wealth tax for extreme net worth, higher capital gains and income tax for the very wealthy, 0% tax for average joe so the field gets evened out and competition gets a bit tougher etc, regulating anticompetitive business practices etc

 

Accidentally all things that China is doing right now and at the exact same point in time when china starts doing these things you start to see the US upping their own spending too because competition gets tougher

 

 

Edited September 14, 2023 by Luca