Allow Me To Rant

Equities start the day higher as bonds continue to lead us around by the nose. Do you mind if I rant here? I need to go on a market related tirade and you guys are the only people who will listen to me. My family doesn’t care, my co workers are tired of me, and Twitter only wants to see memes. Is that a yes? Great. Let’s break this down. Right now the equity market is literally trading in lockstep to what yields are doing. Yields fall, stocks fall, yields rise, stocks rise. The big bad bond market must be telling us something so if they’re worried we should be worried and then just puke up stocks. Hey, have you ever seen this formula? Maybe you have and you forgot it (like everyone else on the planet) but that’s the formula for the present value of future cash flows. If we can agree that the stock market is a giant discounting mechanism for future cash flows then if that little “i” in the denominator (which represents interest rates) falls then the present value is worth….that’s right…more. So am I supposed to be rooting for interest rates to go UP so the denominator can get bigger? Did I sleep thru fractions? Ok, yes, I know the move is more about slowbalization, monetary policy, and inflation expectations so don’t @ me trying to ruin this rant. Whatever, fine, we want rates to go up so stocks can stop worrying about slowing growth then someone dial up Beijing and tell them to dump their Treasuries. Better yet get Jerome on line 1 and tell him to start puking up that $3.8T balance sheet, that’ll get rates higher and then we can all love stocks again. Hey, anyone remember when we were spooked by RISING interest rates in late 2018? Fun times.

Most of today was spent obsessing over “rare earth metals” and whether or not “yield curve inversion” means anything which led me to make this tweet. I bet a fair number of Americans know about the Trade War but the rest of them I’m not so sure. I think as we obsess over economic data and interest rates we lose sight of the fact that the average American just doesn’t care about any of this stuff. They care about their family and friends, their jobs, and the things that make them happy. That’s actually refreshing right?  Anyway, stocks went nowhere today and as of now we sit roughly 5% below the all time high. If we wanted to keep it real for a second 5% selloffs happen all the time, in fact in any given year we see up to three 5% drawdowns. Will this one get worse? Is the top in? If I had those answers I’d be running a family office so I will say this: Only time will tell so stay tuned to all the market content we provide here at Baird because its unmatched on the street!! (@williedelwiche/@strategasRP)

Let’s wrap up this goat rodeo and head home shall we? I felt like I needed to rant earlier because I love bloviating about the irony inherent to what moves stock markets. I know that it’s the direction / velocity of rates that matters more than the level so I’m not being purposefully obtuse. I just find it funny that we worried about rates >3% and now we’re worried as they approach 2%. I guess it’s like the price of oil. Oil above $80 is bad and oil below $30 is bad. That being said the great @ukarlewitz points out that there might not be any signal at all from what rates are doing so *shrug*. I guess if I had to finish with a thought it would be this: rates are basically acting as a proxy for sentiment right now. We know that falling sentiment is bad for stocks until it gets to an extreme level then it turns good. So….will “low rates” become good for stocks? i.e. will TINA rear its head? (for those of you playing at home TINA means “there is no alternative”) I bet you’ll be hearing more about that soon!

News highlights: 

So I can’t explain any of this end video, I don’t get it, someone needs to walk me thru all this because it’s mind bendin

Have a good night