Stocks For Show, Bonds For Dough

Not financial advice, just musings from a guy.

Right now (yes, it’s early, but yesterday, the press was all about the January Effect, still true, but):
S&P 500 = .45%
AGG = -.82%

So while the financial press is all about stocks (Elon Musk, Kathie Wood, et al), the bond market and foreign exchange market are many times larger, and this should never be forgotten.

We used to make fun of those that trade stocks as the minor leagues because the amount of capital that constitutes a “large transaction” in stocks wouldn’t show up on a bond trader’s radar (and a foreign exchange trader would laugh even harder).

Imma broken record: the Government of Singapore does not care about a stock analyst’s view of Mega (the old Facebook). Completely, utterly irrelevant.

The HUGE money cares about paying its financial obligations to pensioners.

They need to pay it in THEIR domestic currency, which means that they need to convert returns BACK to their own currency. This is why foreign exchange levels matter.

They are not watching CNBC to get their asset allocation advice among stocks and bonds. They are using the GLUE, their variation of it, as described here. Again, you do not need to know how to calculate the math, it is the principles that are important to understand, so that you understand the risks inherent in your portfolio as a whole.

VIX Didn’t Drop During Santa’s Run

Things that make you go hmmm (it’s a lyric from an old song, fyi).

VIX is a measure of the implied volatility in S&P options markets. You don’t need to know how to calculate it, the graph is entirely the same as every other financial topic that I write about, literally it is the singular framework.

This picture has been seen on this Substack and videos, as many times as I can mention. You do NOT need to know the math here, you need to see the fact that the letter ‘v’ exists, and it changes the value of an option. Higher uncertainty, higher prices: that is the relationship that you can assign to your personal situation as you consider any financial choice you face. If you are Jabba the Hutt, the ACA-regulated, competitive price of health insurance is a price that is too low, i.e. Jabba buys with both hands, especially if he gets access to the APTC.

Anyways, back to the show:

It may “look” like the blue line is a lot lower during the past 3 months. Actually, my opinion is that this has stayed stubbornly high, when compared to Santa’s clear run to the all-time highs.

Takeaway: not everyone is fully convinced here, even when you take into account that seasonality is very powerful, and the professional market knows this.

Financial Media Has One Goal: Viewership

Client, that has forgotten more science in the last minute than I have learned in a lifetime, remarked, “Why isn’t this on Bloomberg?”

Where you stand depends on where you sit.

For now, Santa still cruising around a bit, but the bond market can torpedo the entirety, that has always been the case. It has simply been the fact that interest rates have remained this low, for this long, that most people don’t know, or have forgotten.