[Covariance]

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.

That's a flamboyant statement but is just stating the obvious and sometimes it's hard to take those people seriously. It's not their true objective of course, which is fighting inflation, but is an outcome none the less. The whole point of raising rates and QT is to reduce demand in the economy. If it is successful it will at minimum reduce pricing pressure on goods and services sold in the economy.

As an aside the only governors I listen to are the chair and vice chair. The rest are political, talking to their local audience.

 

[james4beach]

That's a flamboyant statement but is just stating the obvious and sometimes it's hard to take those people seriously. It's not their true objective of course, which is fighting inflation, but is an outcome none the less. The whole point of raising rates and QT is to reduce demand in the economy. If it is successful it will at minimum reduce pricing pressure on goods and services sold in the economy.

Yes and I actually agree with Dudley. It makes sense: tightening liquidity means stocks will fall.

If stocks haven't fallen yet, it's an indicator that liquidity hasn't been tightened enough. He recognizes (as many other economists do) that excessive liquidity has induced all kinds of wacky things.

Here's a good piece from Josh Brown. He's reminding us: yes, the Fed is your friend. They want to tighten liquidity because it's healthy for all of us. Jump to 2:40

"The Fed is your friend. The nonsense [in stocks and risk assets] has to stop."

 

[james4beach]

I still think this could be an awful year in stocks.

In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.

And draining liquidity makes the price of everything drop. This is a good effect, but it probably takes stocks with it.

I think American and European stocks are going to drop a lot more. I'm not selling any of my US stocks though, because I could be wrong.

 

[KaeJS]

I still think this could be an awful year in stocks.

In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.

And draining liquidity makes the price of everything drop. This is a good effect, but it probably takes stocks with it.

I think American and European stocks are going to drop a lot more. I'm not selling any of my US stocks though, because I could be wrong.

I don't say this often -

But I think you're right. 😅

 

[londoncalling]

Anybody putting together a list for when the bear comes out of hibernation? Many interest rate sensitive stocks have already moved in anticipation of higher inflation and higher interest. I think if we do get a bear there will be a lot of options and a lot of time to move. I will likely run out of dry powder before the deals expire. I made some good buys in 2020 but the drop was steep and recovery was rather quick. Everyone sees this correction coming which could mean it doesn't happen as expected.

 

[Covariance]

Anybody putting together a list for when the bear comes out of hibernation? Many interest rate sensitive stocks have already moved in anticipation of higher inflation and higher interest.

I've got a couple of different game plans mapped out, depending on how events unfold. That said, a bear is one scenario but not my base case. The economy is just to strong (at the moment anyway). Not that I see any run-up either.

 

[MrMatt]

I still think this could be an awful year in stocks.

In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.

And draining liquidity makes the price of everything drop. This is a good effect, but it probably takes stocks with it.

I think American and European stocks are going to drop a lot more. I'm not selling any of my US stocks though, because I could be wrong.

I was thinking the same thing, and was thinking my investment priority this year might be... gasp... mortgage prepayments.

I'm on variable, and if it hits 4%, that's quite a compelling 'fixed income' investment

 

[james4beach]

What a bloodbath! This is for sure a bear market.

I'm sticking with all my existing positions of course. No point in trying to time this kind of thing.

I will also remind people that bonds are generally less volatile than stocks. So if stocks continue to tank, there will likely be some safety in bonds. Certainly is safety in GICs... in case anyone wondered why there's any point to holding GICs.

 

[doctrine]

This is technically not a bear market for the S&P 500 or TSX, just correction territory. It is a clear bear for the NASDAQ - ouch, down 26%. ARKK is down almost 70%, which is a dot-com era blowout. Tech investors could have a rough decade ahead.

It's not even a -10% correction for energy, even after a 7% drop today.

This could be the early stages of a wider bear market though, maybe just a necessary once-every-2 to 3 year bear. Quite healthy. There is enough nonsense stocks out there. Nice to see Bitcoin showing its true colors too.

 

[james4beach]

This S&P 500 chart is not encouraging. It just made a "lower low" and might break below 4000.
If it falls below that psychological support level, then many timid investors will sell. Then it could go down towards 3000.
Could be a 38% drop in the cards.

 

[investor65]

I think this will turn into a bear market.
Edit. I think the S&P will be a bear market.
Not sure about the TSX.

 

[TomB16]

I think this will turn into a bear market.

I hope so. I would enjoy an opportunity to expand holdings on some great companies at discount prices.

 

[james4beach]

I hope so. I would enjoy an opportunity to expand holdings on some great companies at discount prices.

Curious, where do you get the cash for that from? Aren't you retired?

 

[Jimmy]

There has been good buying opportunities already IMO. They will sort this short term inflation out w a few more rate hikes if needed. Bond yields are already getting over 3% - above their recent avgs of ~ 2.5%

Much of this is due to oil and there should be more supply soon. OPEC is increasing supply and there is more drilling going on everywhere. We are supposed to be moving to EVs further reducing our demand for oil , another reason this oil shock should be short lived.

So get ready to load up on cheap stocks in the next few months or even nibbling now. Maybe wait until prices cross their 200MDA going up. Once inflation starts dropping they will stop the rate hikes and markets will roar back to life.

 

[KaeJS]

There has been good buying opportunities already IMO. They will sort this short term inflation out w a few more rate hikes if needed. Bond yields are already getting over 3% - above their recent avgs of ~ 2.5%

Much of this is due to oil and there should be more supply soon. OPEC is increasing supply and there is more drilling going on everywhere. We are supposed to be moving to EVs further reducing our demand for oil , another reason this oil shock should be short lived.

So get ready to load up on cheap stocks in the next few months or even nibbling now. Maybe wait until prices cross their 200MDA going up. Once inflation starts dropping they will stop the rate hikes and markets will roar back to life.

I agree with all this.

I have also started nibbling on interest rate sensitive stocks.

 

[TomB16]

Curious, where do you get the cash for that from? Aren't you retired?

How is being retired relevant? Perhaps you are under the misapprehension that retired is synonymous with poor?

I get the cash from my trading accounts.

I don't invest like you. Read the endless rants I've posted. My foot remains heavily on the accelerator of the investment car. That is how I mitigate risk.

The WBI has been 210 recently so I have been letting cash build for quite some time.

 

[londoncalling]

US CPI data on Wednesday should be interesting. If results are worse than expectations the selling will continue. If inflation comes down there may be some belief that rate hikes will be less aggressive. One has to be mindful that rates are still way above target and likely will be for awhile. I may nibble a bit tomorrow. I want to pick up APPL, MSFT and AMZN. Of the three only AMZN is trading where it was in in the spring of 2020. Not sure if it will break $2000. The other 2 haven't even found their 52 week low yet.

 

[TomB16]

US CPI data on Wednesday should be interesting. If results are worse than expectations the selling will continue. If inflation comes down there may be some belief that rate hikes will be less aggressive. One has to be mindful that rates are still way above target and likely will be for awhile. I may nibble a bit tomorrow. I want to pick up APPL, MSFT and AMZN. Of the three only AMZN is trading where it was in in the spring of 2020. Not sure if it will break $2000. The other 2 haven't even found their 52 week low yet.

I don't trade but I speculate there is an opportunity to trade this sort of data. These days, reports such as this lag the market so much that they are way too slow for retail investors with no attention span. I'll bet this data is 45 days old, by the time it is published. Further, I think inflation is probably worse than will be indicated in the CPI data.

 

[scorpion_ca]

The WBI has been 210 recently so I have been letting cash build for quite some time.

What is WBI and what does it mean when it's 210?

 

[AltaRed]

How is being retired relevant? Perhaps you are under the misapprehension that retired is synonymous with poor?

I get the cash from my trading accounts.

I don't invest like you. Read the endless rants I've posted. My foot remains heavily on the accelerator of the investment car. That is how I mitigate risk.

The WBI has been 210 recently so I have been letting cash build for quite some time.

Most retirees don't have the luxury of cash flow generation exceeding cash flow needs so one can be reasonably excused from that anomaly. It's not called 'withdrawal' or 'draw down' mode for nothing. It's a fair and reasonable comment.