Down goes the Dow

small caps down 11% in a week.

that's shocking. Just dumping economically sensitive names.

on the other hand, health care is solid today.

Worst possible outcome. Rallies above 3,900 should be sold. We will likely hit new lows in coming weeks.

igy take a look at what's going on. The government has stepped in to solve economic crises. As it always has and always does. This is a positive, not a negative. But your view is always that government interference is bad and will result in a market collapse. Despite a long history of the opposite.

Anyway, fact is, we thought we'd have 5% interest rates for a year or so. Now it looks like we will have 3-4% interest rates for a year or so. That's a positve for stocks and the economy.

I don’t buy that. The Fed is being forced to slow down, and inflation is still a problem. SVB, can be added to FTX, ARKK and Meme Stocks. All symptoms of broader systemic problems caused by Government reckless economic policies and Fed accommodation. Yellen et al panicked. Powell will too. Only real way out is broad economic decline, and a fundamental rebuild on traditional economic foundation.

or inflation continues to cool and by next year is back to 2-3% and problem solved. And that's clearly what interest rates and economic data have been indicating will happen.

The 10 year at 3.5% is certainly saying that inflation will be solved in months or maybe a year.

I disagree with that assumption.

Treasury and Fed created more moral hazard. Why? Because the deranged economic policies have forced increasing levels of activism to keep things from breaking. It is inevitable that it breaks. There is simply not enough flexibility left in the system. Pushing on a string, if you will. That is my view anyhow. We’ll see.

I should add, but that is coming from a guy with a 75 IQ.

😂

Current thesis:

the investing environment changed today. until today we were working under the assumption that we should own whatever would work under high interest rates. Value, high yield, small cap.

but now it looks like that thesis is dead and we go the other way...to own what works under low interest rates: basically tech.

I think it might be that simple...back to the past regime of owning tech and growers. I'm selling the high yield and value and going back to techy indices like the SP500.

The risk is that this is just a a one-off weird week.

Alert, another gente cryptic post.

"However, the unanswered question is: what determines the
expectations for the short-term rate? In the absence of reliable crystal balls,
market participants are stuck with attempting to model the central bank’s
reaction function. Thus, inflation is only an indirect input to the “model” for
bond yields - it only matters if the central bank reacts to it. Of course,
since most relevant central banks practice inflation targeting, it should be a
relatively important input, but as I will discuss in future posts, observed inflation
has not been very relevant in practice for the last 20 years or so."

bondeconomics.com

Pricing Bonds via Rate Expectations

A discussion of how bond yields are determined by interest rate expectations

Link:http://www.bondeconomics.com/2013/08/p...

O.K. gente, what's your point ? Well, let's look at this.

What does this mean ? The Fed has removed interest rate risk from the Banking System and at the same time has given itself freedom to keep raising or maintain high rates if the data warrant. A lot of investors have not realized this.

Ok. And what is the downside? Is it some type of power grab?

I'll try to get back later, out on my daily slog.

"...we view last week's events as just one more supporting factor for our negative earnings growth outlook...In short, Fed policy is starting to bite, and it's unlikely to reverse even if the Fed were to pause its rate hikes or quantitative tightening...i.e., the die is cast for further earnings disappointments relative to consensus and company expectations."

-Mike Wilson, Morgan Stanley

Note United after market EPS downgrade announcement. More to come.

I think it's an exaggeration to say that interest rate risk has been removed from the banking system. No bank wants to have its shares decimated by poor portfolio management. Of course banks have to be careful of interest rate risk. Now they will be even more careful, having seen several banks done get blown up and equity zeroed out.

Back on the Mike Wilson train I see. The

So is this just a one time win for bond holders? Sounds like HNW people are diversifying by buying Tbills on market pushing down yield.

Can’t everybody just wait until the next sale of Tbills and buy directly then? Unless Fed cuts aren’t they gonna be back to 5% yield when you purchase?