Wednesday's Market Minute: The Only Way Out Is Through

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There is so much happening in financial economics right now, and frankly none of it is very positive, and I don't want to be the constant bringer of bad news. But the truth is that investors are in a pretty dark tunnel and it is likely to be longer than I sense many are able to fathom at this moment. Like we look at the Great Financial Crisis or Dot-Com, it will befuddle future generations how insane we got.
Look no further than the most popular bull case right now to see how twisted it is. They’re hoping the economy will hit a wall and the Fed will once again have to backtrack on its plans. Honestly, it’s despicable and depressing to hear people would rather watch our pandemic recovery skid into the ditch than adapt their investing strategy to a more challenging policy environment. Rooting for inflation to peak is one thing, but there is meager evidence of positive cooling. Our last CPI print was warmer than expected, still above 8%, and commodity prices are back at their recent highs. Rooting for the economy to slow down enough to handcuff policymakers right now is like hoping there's an earthquake on your way to a meeting so that you have a good excuse for being late.
The warning for this pullback has been written on the wall for more than a year. Anyone who's getting crushed during that time has been too stubborn or too technically inept to recognize the trend. Notice how long-term Treasury yields have been going up since the moment we invented the vaccines? The 10-year broke out that week 18 months ago and has been going up since. Why on Earth would you root for that line to go back down? So your Roku stock can go up?
The market was running on unbridled valuation expansion long before COVID trading mania dumped the SPAC-storm on us that brought the grossest market-cap distortion relative to revenue the world has ever seen. Take a good look at the stocks around you – many are going to disappear from public markets. Some are going to zero. People are rightly panicking over Snap and Lyft because they've been around for more than a decade and don't make money. They’re not even close. It's impossible to know fact from fiction when no one is holding you responsible for paying your shareholders or supporting your workers.
It's time to accept that a recovery in the American services economy that includes enough real wage growth to support low-income workers is going to bring down stock prices from possibly the biggest stock bubble ever recorded. It hurts, but will be a good thing in time. Watch the Network and figure out how to navigate it. We’ve been more right than anyone.
Bill Ackman's panicked thread on Tuesday was completely accurate as I see it. Remember how stocks sold off when Powell turned dovish at the last FOMC when he said June only needed to be 50 basis points? That’s the market telling you we’re damned if we do, or don’t. This isn’t 2018 when inflation couldn’t hold 2%. This isn’t 2019 when the President was telling the Fed chair to cut rates. It’s the literal opposite. Hoping for a repeat is a Kamikaze mission.
Stocks go up for two reasons: the companies make more money, or people have more money to pay for them. The pandemic era brought simultaneous booms in both forces by way of record stimulus and record pull-forward of technology demand that would’ve taken a decade. It will never get better. A twisted rally may come if the Fed does end up having to reverse, but it would be the greatest short opportunity to-date, and not a fun world to be a part of.
If you want to be an American patriot, short bonds. Save money to buy profitable stocks when the trends reverse, and elect leaders who support your real economy.

Image sourced from Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.