Fed Chair Powell Reverses Course

This is very different from what the market heard just a week ago.

The Bloomberg.com headline says it all. Interest rates jumped, and risky assets dropped sharply. Note that it is not only the direction/level, but the speed. It is very difficult for anyone to navigate around speed.

Perhaps the Fed watched the market’s reaction, and said to themselves “I didn’t mean to say it that way….” We will never know this. It was very clear that risky markets interpreted last week as an opening to a period of lower volatility. Today, for now, those hopes were dashed.

Can we put the idea that “stocks are driven by earnings” to rest for good? That can be true-ish, maybe, if the interest rate/foreign exchange complex is stable. Today? Very unstable.

“Toldya…” is the narrative told by some, after the fact, and while it may seem attractive, that is full of survivorship bias.

Always Remember

No one complained when speed was in your favor. No one says that tomorrow cannot reverse or replicate today.

It also means that ‘buying high, selling low’ can feel terrible. And yet, can be entirely rational. Mr Market does not care about how you feel. How you feel cannot be redeemed at the grocery.

When you change the topic to something that is NOT about money, this is easy to say, easy to believe, easy to adjust. In practice, however, that is different.


  • The image above got wider and flatter today.

  • Reminds you that each juncture can occur at any time, no one said that each juncture was equal in time (like once a month, once a quarter, once a year).

  • Reminds you that when you read “you should only look at your financial situation once a [year, every six months], that cannot possibly be correct. It needs to be when something changes {having a child, changing jobs, retiring, Fed announcement to change the interest rate backdrop].

Stay safe.

UPDATE: Friday 4PM, November 10

WOW, individual investors will not be told who or why. What we can glean is that someone in the market MUST HAVE BEEN SHORT.

For those unfamiliar with the idea, you can have positions in markets that benefit if the price of a stock or bond fall. This is known as being short. It is the reverse of your holdings. So, let’s say that AMZN drops by $1 a share, you have lost $1. In the professional market, someone can also be short a share of AMZN.

However, the short positions do need to pay an interest rate in order to be short, which is the cost of ‘borrowing’ the stock. If AMZN goes much higher, those who are short have lost money, AND have to pay the cost of borrowing, on top. At some point, the losses can be too great, those who are short may decide to buy back the shares. What happens then? The price is forced even higher.

Now imagine that the investor is short the entire market (possible)? Greater buying pressure builds, forcing the price even higher, and then a cascade occurs. And out of ‘thin air,’ even in the face of yesterday’s news, the market rips higher. Ah.

You have seen this in real life, in the real estate market, for example. The supply is constrained, interest rates were low, there were more buyers than sellers. What happened to the price of houses? Higher.

Next week? Still at the red arrow as displayed in the image earlier in this article.