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Discussion Starter · #1 ·
I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now. Looking at VT for world stocks, it looks to me like a down-trend. I think the more worrying part is that the MSCI EAFE is falling sharply due to the war and worsening business conditions in Europe.

Normally one would say "don't worry, the Federal Reserve will juice the markets and rescue stocks any moment" but they should be raising rates soon.

Or maybe the Fed will now give up, and leave rates alone? It would really be "out of character" for the Fed to actually go ahead with ending QE, while stocks are declining. But if they actually go ahead with rate hikes and ending QE, I cannot see how stocks can possibly go up.


What I'm doing: sticking with my existing asset allocation plan. I'm still 31% stocks today, more or less on target. However I do have a strong Canadian equity bias, and they've been holding up very well so far.
 

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I think the Fed has to prioritize controlling inflation over rescuing the market here

I also think the US cornering themselves into this tough decision, along with things like the Afghanistan withdrawal, is at least part of the timing for Russia. This looks like an inflection point to me. The world is drastically changing. The fourth turning point is here as the boomers fumble the torch

My favorite commodity play at the moment is sprott physical uranium
 

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I thought the economy and the recovery was sound. The stock market is not the economy but just one barometer of it is it not? And a bear market does not necessarily mean a recession does it? I thought that was two quarters of negative economic growth. I didn't think the Fed ever juiced the markets just to rescue stocks. Everything right now is being driven by fear. I heard someone say even the run up in oil is not driven by demand, but irrational fear. This is what is inflationary and may trigger a recession. The guy on BNN last week saying oil is in a multiyear bull run is nuts as we are already on the precipice of demand destruction. I would expect that with all his great posts and obvious intellect that J4B would not think that part of the Fed's job is to prop up the stock market.
 

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Discussion Starter · #4 ·
I would expect that with all his great posts and obvious intellect that J4B would not think that part of the Fed's job is to prop up the stock market.
What they did in 2008 (starting QE) and again in 2020 (buying corporate bonds, and amping up QE) came across to me like propping up the market. But the QE programs also benefit the economy, so it's hard to distinguish the two.

To me the more telling one was 2018, when the Fed only suggested they would taper QE. The stock market fell very sharply. There wasn't a recession, and yet Powell immediately back tracked. The only explanation I have of that one is that the Fed was concerned about the stock market.

This idea of the Fed rescuing the stock market started back with Greenspan, and is called the "Greenspan Put". Since then, Bernanke, Yellen, and Powell all seem to be following the same general idea, as far as I can tell.

I don't think I'm the only one who thinks that the Fed routinely rescues the stock market.

I thought the economy and the recovery was sound.
Yes Canada remains strong, but consumer sentiment in the US is increasingly looking bad and the war in Europe is worsening business conditions over there. So I think an argument can be made that the combination of high inflation + supply shocks + war fears is starting to point things towards a global recession.

6 months ago, everything looked great and the economy was super strong. But things might be changing very rapidly now, and in the efficient market, stocks might be re-pricing for an imminent recession. Look at the US yield curve, it's also very close to inverting.
 

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My hypothesis right now is we might reach a technical bear market (-20%) soon for the S&P500, but this is going to be short lived because this war can't last for very long. This isn't a superpower starting WW3, this is an crazy man trying to capture his neighbour's territory by using the meagre resources of his poor country and the leftover war toys from a better era. The more this war stretches and the more likely Russia will implode.

Markets are now doing what they always do, they overreact and overcorrect. This war will be over in 2-3 weeks max and we'll be back on the bull train.
 

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I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now.
My position is simple.
Don't care, not selling.

My detailed position is that my individual stock picks are mostly nicely valued profitable companies. I'll likely continue to get my $xk/yr in dividends. so I don't care.
Much of the rest of my portfolio is tech stocks, and I've made so much there I don't really care. For several I've already pared down my position, so even if they drop to zero, I'm at break even. (Apple and Amazon are notable exceptions)

Lots of fear== buying opportunity.
 

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What they did in 2008 (starting QE) and again in 2020 (buying corporate bonds, and amping up QE) came across to me like propping up the market. But the QE programs also benefit the economy, so it's hard to distinguish the two.
2008 was the first time governments poured money into their stock markets. Prior to 2008, every recession response in my lifetime was to prop up real estate. This is why I had very little in stocks, in 2008. I was 95% R-E. We were not adversely affected by the GFC and it had nothing to do with skill.

I never dreamed we would see governments prop up equity markets. Since 2008, I have been slowly exiting R-E. We have very little left.

When governments stop pouring money on recessions, and they will have to correct their spending addictions at some point, there will be blood running in the streets. The good news is that I might be dead before that happens.

The takeaway from the GFC is that governments will put a bandaid on anything that appears to be flagging with little regard for consequence and no regard for incentivizing bad behaviors.
 

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Further...

So, we have decided to keep 3 years of spending money in near cash. This is insurance against sequence of return risk. So far, I'm happy with this approach.

But, if the government continues to de-risk the equity markets, I will be carrying a lot of opportunity cost for little reason. It could very easily be that one year of near-cash is more than sufficient. I believe this is likely. Unfortunately, it's a bet I cannot afford to lose so I will continue carrying a big cash buffer.
 

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Further...

So, we have decided to keep 3 years of spending money in near cash. This is insurance against sequence of return risk. So far, I'm happy with this approach.

But, if the government continues to de-risk the equity markets, I will be carrying a lot of opportunity cost for little reason. It could very easily be that one year of near-cash is more than sufficient. I believe this is likely. Unfortunately, it's a bet I cannot afford to lose so I will continue carrying a big cash buffer.
I think planning to sell equities in 1 year to live is risky.

I think 3 years of near cash is aggressive in retirement.
 

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I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now. Looking at VT for world stocks, it looks to me like a down-trend. I think the more worrying part is that the MSCI EAFE is falling sharply due to the war and worsening business conditions in Europe.

Normally one would say "don't worry, the Federal Reserve will juice the markets and rescue stocks any moment" but they should be raising rates soon.

Or maybe the Fed will now give up, and leave rates alone? It would really be "out of character" for the Fed to actually go ahead with ending QE, while stocks are declining. But if they actually go ahead with rate hikes and ending QE, I cannot see how stocks can possibly go up.


What I'm doing: sticking with my existing asset allocation plan. I'm still 31% stocks today, more or less on target. However I do have a strong Canadian equity bias, and they've been holding up very well so far.
I'm not counting on the Fed to react to Equity prices, unless the market becomes dysfunctional or goes a lot lower.

Stability of bond market is where I'm focused. It is essential as it is the funding mechanism for mortgages, corporate and government financing and liquidity. It is a matter of fact that equity is of value only if claims to bond holders can be met. As a consequence bringing stability to the bond market, in turn brings stability to equities.

Vol and yields in the treasury bond market, and OAS spreads.
 

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Discussion Starter · #12 ·
Stability of bond market is where I'm focused.
And that's deteriorating too. There is virtually no junk debt issuance happening any more -- it's completely ground to a halt. That's not a healthy indication for credit markets.

In Europe, various CDS contracts have started going a bit nuts as there is uncertainty about what constitutes defaults. And many European banks have exposures to markets which are in turmoil.

It wouldn't surprise me in the least if the Federal Reserve abandons hawkishness and instead comes to the rescue. Maybe they'll keep QE going for example.
 

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I thought Powell all but confirmed an increase next week. Going back now would definitely come as a surprise. At teh very least they will need to release a plan on ending QE or lose all creditability. I would hope that they at least put an end to QE as we can't keep digging this hole deeper. At a certain point nobody will be able to get out. Alternatively, they could wait until we experience stagflation and a recession and then go to negative rates.
 

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Discussion Starter · #14 ·
I thought Powell all but confirmed an increase next week. Going back now would definitely come as a surprise.
Sure, no question there's at least one or two increases coming. But what's a 0.50% or 0.75% rate, when inflation is running at close to 10% per year?

I also hope they end QE. This stimulus has been happening since 2008, so that's 14 years now. I'll believe they end QE when I actually see them shrink their balance sheet.
 

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Where it sits at the moment I would not be surprised to see the Fed and ECB diverge on rates here. And ECB put liquidity support measures back in or extend (did they ever really stop?).

That said, we are in a constantly evolving situation and it's all in play.
 

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Sure, no question there's at least one or two increases coming. But what's a 0.50% or 0.75% rate, when inflation is running at close to 10% per year?

I also hope they end QE. This stimulus has been happening since 2008, so that's 14 years now. I'll believe they end QE when I actually see them shrink their balance sheet.
Apparently food prices and futures are going nuts. I think we got a bit complacent, and stopped monitoring monetary policy. Even Trudeau said it wasn't a priority.

Now that we're seeing the consequences, I think monetary policy will get a bit more attention from some of the masses.

I am hoping that we'll have a refocus on basics, you know strong economy, national security, stable and secure food and energy supplies etc. Elon is saying drill for more oil, because we're not ready to go full electric.

I think sometimes the dreamers loose sight of the basics.

As for the markets, I think the companies providing the essentials may be able to show their importance, but I'm concerned that some overeager governments may try to interfere with them.
 

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To the question "are we in a bear market", I wonder if people are noticing this pattern of dead cat bounces.

Today NASDAQ bouncing up by more than +3%, but then we keep reaching lower lows.
 

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Discussion Starter · #19 ·
In all seriousness though, the US reports CPI tomorrow. It could be as high as 8% or 9% inflation.

Generally the market movements in the days before a big announcement tend to be pretty meaningless. There's both US inflation and an ECB announcement coming imminently. The market is going to react to this stuff, probably by early next week.

And then there's the big one, March 16 announcement by the Federal Reserve. That's only a week away.

So the market could be pretty wild this month. As they say, "beware the ides of March".
 

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The Fed is cornered here and I think Putin saw it.

The Fed does have one more tool up their sleeve: Yield curve control

Otherwise we could see an inverted yield curve

Through quantitative easing (QE) designed to combat the 2008 financial crisis and Great Recession, the Fed injected liquidity into the financial system through massive purchases of bonds on the open market. This bid up the prices of bonds, thus reducing longer-term interest rates and borrowing costs.

However, during the financial crisis, the Fed was not seeking to set a specific long-term interest rate. By contrast, under yield curve control, the Fed would set a specific long-term interest rate target and buy as many bonds as necessary to achieve it. YCC would set a specific price for the bonds in terms of their yield.
 
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