No Rulebook

Equities start the day higher as the game remains really, really hard. Not as hard as running a Soviet built RBMK nuclear reactor but still pretty darn hard. As of this morning the S&P500 sat about 2.5% below its all time high but the past few weeks have exposed us to way more than 3.6 roentgens. Slowing economic growth, rising bond yields, trade wars, fresh tariffs with Mexico, weakening technicals, all of which combined cracked the market for a 7% correction. Which hurt, a lot, especially since it looked like we put in a triple top. I’ll admit that over the past few weeks I’ve felt weak in the knees about not only the state of the economy but also of the market, failures at the high will do that to someone. However, and this is not only important but easy to forget, the Federal Reserve can dump BUCKETLOADS of sand and Boron on a market fire. If there’s one thing we’ve learned over the past decade it’s that the market loves a friendly Fed so as the odds of a rate CUT skyrocketed so did equities. Now a great many strategists and pundits will point out that the Fed cutting rates at this point in the cycle is not what we want to see and, using the past as a guide, they are right.  Cutting rates is meant to fight off weakness in the economy not to make stocks go up, in essence this is their primary weapon against the forces of evil. But I think we’ve reached a point in history where rulebooks have been thrown out, in fact “extraordinary interest rate policy” would be a prime example of that. Legasov and Shcherbina weren’t following any kind of roadmap as they fought to contain the fallout from Chernobyl, they did everything they could to save their homeland. They sent men (heroes really) to certain death because they had no other choice. I think the Fed is in a similar predicament i.e what they are witnessing is like nothing anyone has seen before. There’s no manual for helping to contain the damage from a Financial Catastrophe, a Trade War, or tariff driven policy so if they have to cut rates to soften the damage so be it. Should they wait to use that weapon until it’s too late or should they deploy it early? Only history will tell us what the right choice was.-

Couple of stories worth mentioning today. We saw two big deals with UTX and RTN agreeing to merge and CRM bidding $15B for DATA. Yep, that’s right, there’s so much economic uncertainty and global growth fears that we saw two multi-billion dollar deals announced today (/sarcasm off). What else? Beyond Meat has gone to infinity and beyond racking up gains of 256% since its opening print. What’s that? It’s worth $9.8B making it bigger than 80 S&P 500 companies all on 2019 estimated revenues of $221mm? Ahhh stock markets, I love you crazy kids. We saw a nice rally this morning taking us well past 2,900 but by lunch half of those gains had evaporated. Why? No news to speak of so it’s likely we just ran out of excited buyers. Remember: emotional money trades in the morning, the more thoughtful and analytic in the afternoon.     

SPX closed at 2,886, up 0.45%, as we continue to grapple with all sorts of moving parts. Here’s something I want you to remember: I write this blog to both educate and entertain you but the fact remains that investing is really hard. We can create narratives to help ourselves sleep better at night but ultimately stocks can and will do all sorts of crazy things. What’s crucially important is how you act during difficult times. Your behavior when the market goes wild will largely determine how successful you’ll be at this. Think of everyone who cut and run at the end of last year, how hard it must be to get back on track. If you can absorb this one lesson, which boils down to not sabotaging yourself over long periods of time, then you will have learned one of the great secrets to success.  You don’t have to be right all the time, you just need to be a little less wrong.

News Highlights:

So we’re somewhat close to Father’s Day and in the spirit of that fine, fine occasion let’s look at a Dad in the wild exhibiting his “Dad reflexes” (which are known to be legendary)

Have a good night