Be an American Patriot and Short Bonds and Stocks
The bull case being made for stocks right now is the most twisted I've ever heard. Traders who are ailing from a year of declines in speculative high-growth businesses are hoping the economy will hit a wall and the Fed will once again have to backtrack on its plans. I find it a tad bit despicable, and honestly, depressing to hear how many people would rather see our pandemic recovery skid into the ditch than adapt their investing strategy to a more challenging policy environment. Rooting for inflation to peak is one thing, but there is meager evidence of meaningful cooling. Our last CPI print was warmer than expected, still above 8%, and commodity prices are back at their recent highs.
Rooting for the economy to slow down enough to handcuff policymakers right now is like hoping there's an earthquake on your way to a meeting so that you have a good excuse for being late.
The warning for this tech bear market has been written on the wall for more than a year. Anyone who's getting crushed during that time has been too stubborn or too technically inept to recognize the trend. Notice how long-term Treasury yields have been going up since the moment we invented the vaccines? The 10-year broke out that week 18 months ago and has been going up since. Why on Earth would you root for that line to go back down? So your Roku stock can go up?
If you're wondering what I mean, check out this week's interview with Gary Black from the Future Fund. I respect his conviction for his strategy, but I find his base-case view that the Fed won't be able to hike rates for long to be very discouraging. Moreover, I vehemently disagree that a slowdown in the economy will be good for Tesla. Possibly its valuation, but certainly not earnings -- and isn't earnings the whole point of a company existing?
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The market was running on unbridled valuation expansion long before COVID trading mania dumped the SPAC-storm on us that brought the grossest market-cap distortion relative to revenue the world has ever seen. Take a good look at the stocks around you – many are going to disappear from public markets. Some are going to zero. People are rightly panicking over Snap and Lyft because they've been around for more than a decade and don't make money. They’re not even close. It's impossible to know fact from fiction when no one is holding you responsible for paying your shareholders or supporting your workers.
It's time to accept that a recovery in the American services economy that includes enough real wage growth to support low-income workers is going to bring down stock prices from possibly the biggest stock bubble ever recorded. It hurts, but will be a good thing in time.
Bill Ackman's intense Twitter thread this week was completely accurate as I see it. Remember how stocks sold off when Powell turned dovish at the last FOMC when he said June only needed to be 50 basis points? That’s the market telling you we’re damned if we do, or don’t. This isn’t 2018 when inflation couldn’t hold 2%. This isn’t 2019 when the President was telling the Fed chair to cut rates. It’s the literal opposite. Hoping for a repeat is a Kamikaze mission.
Stocks go up for two reasons: the companies make more money, or people have more money to pay for them. The pandemic era brought simultaneous booms in both forces by way of record stimulus and record pull-forward of technology demand that would’ve taken a decade. It will never get better. A twisted rally may come if the Fed does end up having to reverse, but it would be the greatest short opportunity to-date because it would likely mean our economy is in the worst possible scenario.
True American patriots will short bonds, short crypto and short companies that don't have a profitable businesses model. Don't root for the Fed making a mistake; root for a stable climb in Treasury yields and a return to an environment that favors the worker over the unprofitable corporate experiments that have accumulated far too much market cap. Save money to buy good businesses when the coast looks more clear -- for me, that's if Apple can get back above its long-term trendline, which is around $156.
ChFC, President at Alexis Investment Partners LLC
2 年I’d like to offer an alternative perspective, which is that neither the market nor the Fed are likely to resolve the issues you cite in a single cycle that benefits short sellers as yields rise and valuations collapse yet the economy remains robust. Yields stalled at the top of a range they had held for a decade prior to covid and have since come in. Valuations have also reached a point where I believe long term investors can find opportunities that are much more attractive than trying to bet against future growth, especially for those who hope to keep pace with inflation that I see ebbing, but likely to remain elevated for several years. I agree that investors need to transition away from unprofitable concept companies and that there are value traps out there that make selection tricky. That’s part of the challenge, but if you expect to see Main Street continue to thrive and believe as I do that the Fed can be serious about inflation but allow enough expansion for supply chains to continue to come back and services to fully recover - it may be time to look back further than the last 3 major bears and note the many other bear market cycles we’ve seen in the last 40 years that were more frequent but less severe.
Senior Sales Executive-Kyriba | Supporting CFOs & CIOs thru Digital Transformation of Liquidity Management
2 年At this point isn’t the effectiveness of raising rates more about injecting some anxiety into the markets in a sense? It’s about keeping asset prices in check which is a much larger component of individual wealth than it was 30 years ago. I read a piece the other day that 40% of all the dollars ever printed have been circulated since March of 2020. The influence of the Fed isn’t what it once was.
Chief Investment Officer at QXO
2 年Entertaining and excellent as always brother.
Chief Market Strategist at Asbury Research LLC
2 年Yet another very good thought piece by Oliver.