[Covariance]

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

Otherwise we could see an inverted yield curve

No, these are really inconsistent in this context. YCC acts on long yields and is used instead of going negative on short term yields to stimulate the economy (looser monetary policy). We invert when the short term yields go up, not down. Which happens because the Fed tightens.

 

[fstamand]

I think today was a good old "dead cat bounce". Hope you guys didn't buy too much today.

 

[james4beach]

I think today was a good old "dead cat bounce". Hope you guys didn't buy too much today.

Still long HUC as my ongoing inflation/disaster hedge.

Today must have cost Larry about $110K though.

 

[m3s]

No, these are really inconsistent in this context. YCC acts on long yields and is used instead of going negative on short term yields to stimulate the economy (looser monetary policy). We invert when the short term yields go up, not down. Which happens because the Fed tightens.

Do you mean the article is inconsistent?

We are expecting the Fed to tighten and push the short term up. The Fed is pressured to do so to control inflation. Normally the Fed would tighten when the economy is strong but the long term yields are flattening which could lead to yield curve inversion

The long term yields are flattening indicating the market is not sure the economy is strong. Normally facing a potential recession the Fed wouldn't tighten but now it's cornered by inflation. High oil prices is another signal for a potential recession

Could the Fed use yield curve control here instead of stimulus while they tighten to control inflation? Seems to me they tried to play God with the economy too long

 

[Covariance]

Do you mean the article is inconsistent?

I mean these two tools would not be used as suggested in the post as they would fight each other, not work together.

 

[Covariance]

Spill over coming out now. Initial hedge fund closures and the Nickel issue. Looks manageable thus far, but contangion is still a known unknown. Stay nimble.

 

[m3s]

I mean these two tools would not be used as suggested in the post as they would fight each other, not work together.

This is the absurdity of the situation. Ending QE and raising rates from 0 to tamper inflation as recession warnings flash.

If you raise short term yields when the long terms yields are flat you risk inversion right? Then what yield curve control? Everything you manipulate has unknown 2nd and 3rd order effects down the road so you end up have to use more manipulation to fix your own manipulation

The Fed is trying to drive the global economy by looking in the rear view mirror

 

[Faramir]

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.

Yes the oil price is way out of whack. A lot of people made a lot of money though. My guess is a few more days of bleeding then a rally. Probably close to old highs. Not because earnings justify it. Just because the entire market is driven by emotion.

 

[Faramir]

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.

Economically not sure Putin can last a few more weeks.

 

[TomB16]

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.

Agree on every point made.

 

[james4beach]

Just noticed that the market is tanking throughout the day... boy did that "rally" fizzle out!

Yikes, NASDAQ really falling very hard.

 

[rickyv]

I am very new for investment, In order to tell bear market, how can we tell market "overbought"? are there any indicators? Maca, MA lines? I was totally loser, Many years ago, bank adviser told me to buy bond mutual fund and money market fund for safer investment, many years has passed, I am able to access my RRSP on line this year, It was horrible, My bond mutual fund lose 50%, Money market fund lose 20%. I am thinking to buy bank stocks.

 

[james4beach]

In order to tell bear market, how can we tell market "overbought"?

There really is no clear way to know. This is more of an art than a science, and it's bit of a game.

Personally I still think stocks will be weak this year. I don't think the current rally will continue much longer. But who knows!

My bond mutual fund lose 50%

Are you sure? From what I can see, bond funds are down maybe 15% to 30% in the most extreme cases of "long term" bond funds.

 

[KaeJS]

I am very new for investment, In order to tell bear market, how can we tell market "overbought"? are there any indicators? Maca, MA lines? I was totally loser, Many years ago, bank adviser told me to buy bond mutual fund and money market fund for safer investment, many years has passed, I am able to access my RRSP on line this year, It was horrible, My bond mutual fund lose 50%, Money market fund lose 20%. I am thinking to buy bank stocks.

What?

Money market funds don't lose money.
Definitely not 20%.

 

[james4beach]

I think the down-market has resumed. I think we now get the next leg down.

Concentrated in US / tech / momentum stocks as before.

I also think ZWU (BMO's US low volatility index) has done a good job picking stocks that aren't vulnerable to this bear market. Year to date, ZWU is +7.5% compared to ZSP -7% which is incredibly good.

 

[Covariance]

I think the down-market has resumed. I think we now get the next leg down.

Concentrated in US / tech / momentum stocks as before.

I also think ZWU (BMO's US low volatility index) has done a good job picking stocks that aren't vulnerable to this bear market. Year to date, ZWU is +7.5% compared to ZSP -7% which is incredibly good.

They are selling volatility and the up-side return potential of their stocks (covered call strategy). So they are actually just betting the stocks they own will go down, or increase less than predicted in the option market.

 

[james4beach]

They are selling volatility and the up-side return potential of their stocks (covered call strategy). So they are actually just betting the stocks they own will go down, or increase less than predicted in the option market.

Sorry my mistake, I meant ZLU: the BMO Low Volatility US Equity ETF

Top holdings are: NEM, ED, NOC, CTRA, LMT, JNJ, AEP, AZO, PGR, BMY

In the charts you'll see that these have been completely immune to the selloff in the US. Here's a chart of ZLU (the low volatility strategy) versus ZSP for the S&P 500.

 

[james4beach]

@MrMatt I recall that some time ago, you were interested in US stocks (not the market index) that could fare better in a bear market. Have you considered ZLU?

 

[MrMatt]

@MrMatt I recall that some time ago, you were interested in US stocks (not the market index) that could fare better in a bear market. Have you considered ZLU?

Actually that looks really nice.. my kind of companies, boring, "has beens" etc.

 

[james4beach]

Dudley, the former head of the NY Federal Reserve, said yesterday that the Fed has to tighten policy enough to make stocks fall, so that pain is felt in the stock market.