One might think that the CPI numbers coming in hotter than forecast would shake the equity markets a bit–at least for a few hours, but again we have the buy the dip crowd move in and do ‘their thing’. The discussion is well underway on how large the next Fed Funds rate cut will be–everyone is convinced there will be a rate cut at the next FOMC meeting in November. As noted by many this is just ‘noise’ and not of much consequence to us–I would prefer that common stocks go sideways forever letting us concentrate on interest rate movement for income investing, but that isn’t going to happen so we will just ‘deal with it’.
The 10 year treasury is trading at 4.09%–this is the important number to me–this high yield hasn’t caused the type of damage in preferreds and baby bonds one might expect–at least yet. I haven’t seen much movement at all in our portfolios and as always I am most happy to collect dividend and interest every day. I have dry powder, but not really excited to be buying much although the new issue from the Eagle Point Institutional Income Fund is interesting–a fund with solid asset coverage ratios and a 8.125% coupon always holds interest.
For now, I am going to just sit back and watch–let some of the noise dessipate then decide on my next move.,
Well Im no expert , but I was around in 1999-2000. This smells like that , things go up even though the numbers don’t make sense. We all know what happened then, I remember everyone said , ” Buy anything with a “E” such as E toys. This is time is not different , we have this genius maniac, from Nvdia, and Musk, running around . making headlines so that Joe common thinks it has to go up.
Nothing , Nothing goes up forever that includes ehh you know what. We are in a mania an AI mania. This will not end well.
I think there is a lot… and I mean a lot of normal every day people who think the market is a sure thing right now. 15-20% gains per year is normal and expected. We have your average Joe buying high yielding monstrosities such as NVDY and MSTY (“yieldmax”) like it is a normal decision. We have the guy next door piling into hot individual stocks like their earnings will keep going up 30% year after year, forever.
Not sure what exactly caused this but it really does seem tied to covid somehow. Everything rocketed up. Real estate, bitcoin, diving into options, collectibles, Wall St Bets on reddit, etc… Just look at charts before and after 2019-2020. Something changed mentality wise too. Perhaps this caused a new generation or two who took no interest before to suddenly pile in.
Who the heck knows now days. Something will cause chaos in due time and cause all of this to unwind. Every single time people say it is different this time yet history has shown the same over exuberance and risk taking repeats.
Reconfirming my thesis that I’m my own worst enemy because I know enough to guarantee that normal every day people who know nothing are easily capable of and are by far outperforming me….
Perhaps you are underperforming because the markets have been mindlessly up, and your true skill will limit your losses in a more difficult market.
I was talking with a friend the other day. He mentioned a stock. I said the numbers don’t look that great. He responded, ya but these days the numbers don’t mean anything, you just have to follow the chart and its chart looks good. It is amazing these days that a lot of retail investors just invest in a stock because the chart looks like it should keep going up even if the numbers don’t justify the valuation.
Post massive Fed liquidity and easing, fundamentals stopped meaning much.
Thank Yellen, Bernanke, and everyone at the Fed since then.
You forgot Greenspan.
“Not sure what exactly caused this but it really does seem tied to covid somehow. Everything rocketed up. Real estate, bitcoin, diving into options, collectibles, Wall St Bets on reddit, etc… Just look at charts before and after 2019-2020. ..”
Here’s an idea what caused it – https://fred.stlouisfed.org/series/QBPBSTAS
I guess I was thinking more the mentality of individuals more so then money supply. Somehow a more reckless era of risk taking and speculation has become the norm once again.
An example is young males between the ages of 18-32 playing with short dated options. This was not normal common behavior before 2019. Or whatever happened with Game Stop. Etc.. etc… It is involving a group of people who historically did not care about wall street. They see it as a casino.
Something is going to happen to destroy this mentality as it always has in the past. Not sure when or what but it never lasts.
I keep thinking ‘wait for it… wait for it…’ but I’ve been thinking that for years. Seems to me the Quantitative Easing Nuclear Option is the culprit – always arriving to save markets like the lone ranger. I’m thinking that any major market downdraft would have to be caused by something that couldn’t be solved w/ the QENO. What might that look like? A mutant ninja turtle Fed chair? Dysfunctional bond trading environment?
Short term moves in stocks have become highly dependent on options flow especially with 0DTE daily games. Longer term option flow indicate that we are at or within a fraction of the high and are more likely to drop 5-10% than to go up 5%.
I haven’t made any changes to my holdings other than selling ETI-P to realize some capital gains. Unfortunately, I haven’t found anything appealing to put those proceeds into so they went into SGOV.
aj—” Longer term option flow indicate that we are at or within a fraction of the high and are more likely to drop 5-10% than to go up 5%.”
Could you explain that? Thanks
Whidbey,
This is based on the levels where there are large option positions through the end of the year. These tend to act as resistance/support levels. The current situation is stiff resistance at SP 5800, little support till 5400 and if that breaks next is 5200 but probably doesn’t go that low unless we have some catastrophic event like a major expansion of the war in the middle east that causes major damage to oil flow from Gulf countries. People seem to be expecting stocks to move up big after the elections, I’m not so sure.