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!
- Quote of the day from Alejandra Grindal of NDR: “The trade war has intensified since early May after talks between the U.S. and China broke down. Meanwhile political risks have deepened across the globe, particularly in Europe, including an increasingly uncertain outcome over Brexit and renewed fiscal tensions in Italy. One tailwind continues to exist, and if anything, it has strengthened – global monetary policy has become more accommodative”.
- This is a tour de force of an article… 5 Lessons from History: This is my favorite: Lesson #4: Progress happens too slowly for people to notice; setbacks happen too fast for people to ignore. There are lots of overnight tragedies. There are rarely overnight miracles
- By the way, Yields have been falling since 1980
- June is seasonally a tough month for markets: “Going back the past 20 years, only September has been worse on average, and returns have been quite poor in June after a big drop in May.”
- This should finally put to rest any notion that Millennials are “lazy” or that they just wanna sit around eating avocados. What a truly incredible story: “When an Alabama college student's car broke down the night before his first day at a new job, there was one thing he knew he wouldn't do: Not show up. So he walked to work. For 20 miles”.
- Where can I buy this? I need it
- I said it before but I love the English and all their accents
- Marketwatch looks at How much should you withdraw in retirement: “A portfolio with a 60/40 percentage mix of stocks and bonds and a 6% variable distribution plan held up nicely for 49 years…well beyond the typical span of anybody’s retirement”
- The US consumer is so worried about the economy and falling rates and a trade war that they’ve hunkered down and…what’s that? They’re doing what again? “The Disneyland Galaxy’s Edge opens Friday, with the Orlando location following in late August. Jesse Silva, a 27-year-old die-hard Star Wars fan from San Diego, has already reserved two days at Galaxy’s Edge, including opening day. With an $800-a-night hotel reservation and two-day tickets for himself and three friends he is treating, Mr. Silva expects to spend about $3,000 on this first visit, including about $500 set aside for lightsabers and other souvenirs”
- Gorgeous picture of Mt St Helens
- Fellow 80s kids…you feel me here?
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