September Is “Suddenly” Nasty

On July 29, I hurriedly wrote an email to the stable (which is our narrow set of clients that keep the lights on over here, we have bills yanno). The title was “We’re gonna party like it’s is 2022.”

Here Is The Email I Sent

Closed list email, so it’s just us here in the stable (it’s a blind-copy email)

a. Jae’s Rib Shack is still going to have problems, the Silicon Valley Banks still do not want to lend money to Jae’s Rib Shack. Does anyone want to buy an office building? Here’s a morsel of financial advice: DON’T.

b. Big tech makes all the money, makes sense, they are smart and have brutally slashed bloated costs. So if there is no GDP disaster, they make more.

c. Large container of laundry detergent costs $15. Cheerios costs $7 a box. Oil has dropped dropped dropped all year, oops, back to $80/barrel, gasoline is higher and will be.

d. The USD has been stable or going lower, i.e. Mr Frankfurt could buy USD assets on discount.

e. Many thought the world would end, it didn’t, they were underweight stocks, they had to Ketchup (Uma video), managers are fired when they dramatically underperform “the Jones.”

f. None of these are news at all, this has been true for months and months.

What is new

1. Link between rates and stocks changed today, stocks have largely shook off the gradually higher interest rates. This is the glue holding asset classes (stocks bonds foreign exchange commodities etc) together. That glue became a bit less sticky and cooperative today. My point is that the performance this year is the LACK of volatility and LACK of changes in the relationships of the factors which are MUCH bigger than your earnings guess. TODAY IS PRETTY MUCH FIRST TIME ALL YEAR THAT THIS WAS CHALLENGED. (Note: this has played out, not because I had a crystal ball of the future, it was that I observed that something was brewing).

2. The method of looking at things has not changed (Henri video). However, the market has reacted differently.

3. SO now, we need to take note. I’m awake now.

Changes will be made if this Is confirmed (it’s a single day), we will be leaving the drunken party slightly early, unless your specific situation mandates it.

Fast Forward to Today

Yesterday, Chairman Powell doused the fuel-soaked timber a bit, and interest rates increased dramatically today. “Stocks for show, bonds for dough,” indeed. The denominator SPIKED higher, what was gradual and higher is now volatile and higher. That is very different. Risky assets do not do well when the denominator is jumping around in erratic fashion.

You can have all the earnings projections and cling to the wrongly-placed, overstated narratives you would like, you cannot get away from the proper order of operations, which is masked when things aren’t choppy.

So “all of a sudden,” NPVs paid attention, and now stocks are lower than July 29. Not too tough Easy to understand, if you get off the wrongly-formulated narratives spewed out by the Mayor of Numeratorville.

Interest rates need to be understood FIRST, the bond market is rarely wrong. It makes entire sense, look at at the image below. Oh by the way, the parties that know this? They have infinitely more money than any mutual fund or stock picker.

If the richest guy in your neighborhood sells three houses in your subdivision, it doesn’t matter what you think: the market price is lower. Period.

Does It Matter?

Well, that depends. If you are depending on higher prices of risky assets, then yes it matters. If you have spare cash, then this can be an opportunity, 3-year fixed annuities are 5% a year, guaranteed. If you are a borrower of money, then it matters a lot. We will discuss this on Saturday on YouTube at 10A.