Stable (ish) Rates Means Higher Markets

For followers of this newsletter, you see the following:

  • Interest rates and foreign exchange FIRST. Setting up an investment strategy, without knowing this first, is like ‘eating soup with a fork.’ My slogan: “Stocks for show, bonds for dough.”

  • More subtly, it is not only the level, it is the volatility of interest rates and foreign exchange that matters. Companies can adjust and they do, if the denominator is stable, even if the absolute level is higher. For example, the mega-cap technology companies have laid off 10,000s of employees.

Now, Look At This Graph

Hilarious caption: “MOVE inverted vs SPX needs little commenting.” Uh, yeah, Jae understands it, along with those closer to the front row.

  • MOVE is the measure of volatility of interest rates.

  • They flipped it exactly upside down to show you that as MOVE declines, SPX (which is the stock market) increases. And vice versa. VOILA, my second point in full view.

So while it is understandable to be caught up in the narratives that people can watch on TV easily, this is the big picture. The volatility of interest rates has been muted, which allows the focus on the popular, easy-to-digest issues, such as “AI investing is the best thing since sliced bread (or this Newsletter, obviously).”

Now What? Back To Uma.

The investment industry is brutally competitive. Sometimes, people make ‘hero calls,’ the news is full of this, because the speaker wants to put his/her imprint among the crowd. However, if that has left the manager(s) offsides, then they need to catch up (ketchup).

Keeping up with the Joneses is a real pressure in the investment industry. When add my narratives, which I have described on many occasions, then yes, markets higher would be the outcome. The timeframe of this video is different.

The principle, the idea? Same.