Financial Markets Crazy Already

Friday was stunning but easily explained: DENOMINATOR LOWER, duh.

Just re-read what has been said on November 10th (Click here to read), and many times here.

What is not resolved?

a. So lower wage growth might be good for inflation. Is it good for employees, who are now losing ground versus inflation? What about Jae’s Rib Shack?

b. On the other hand, the cost of borrowing for Jae’s Rib Shack is lower, maybe we can pay our bills more easily. Note: you can easily replace “Jae’s Rib Shack” with “Bed Bath & Beyond,” to see what can happen.

Speaking of Bed Bath & Beyond (Jae’s Rib Shack)

c. The flip side to point b is that small companies like BB&B don’t matter when it comes to the market as a whole (that would be correct, the weighting isn’t large), unless the ex-employees, now laid off due to the fact that BB&B stores are being closed.

d. Caution: the idea that you are going to cherry-pick the winners and losers on BB&B should not be confused with luck. We do not have a front-row seat here. Every company has to pay debts FIRST, so when a company is in peril, the power belongs to the bondholders and the banks, NOT THE STOCKHOLDERS. If you have watched the many broadcasts on the YT Channel, I have been pointing out that if this is the exercise that you believe is worthwhile, think again, you are almost certainly wrong. And, if you happened to get a great result, then well done, you are lucky. If you have no edge on small companies, especially, you are risking far more than what is being presented in the media. Let me put it to you this way: if you do not know what the phrase capital structure arbitrage is, that should tell you how far away you are from what can go on.

The Return of 60/40? Could Be

We have had a very strange two years. Makes sense, we have had a pandemic, a biological problem, and governments attempted to solve it with money.

Since the first shock of higher inflation passed, as has time, there has been a normalcy of sorts. Rates down, risky assets in liquid markets up. And vice versa.

So this is a welcome sight to many: VFORX is +2.24% for the week, it’s a lot. The difference between now and last year? Bonds offer higher interest rates now. And that will make it riskier, because people will be searching for yield, which exposes them to bond price volatility.

If You Ask Me About The Future…Don’t

Maybe I have taken this AI stuff a bit too far. Nah, there’s always a new way to not take yourself too seriously.