Stock market update

[KnightWhoSaysNit]

Jones says he would short the long end of the treasury market. I would agree as I see uncontrolled inflation as the likely scenario (and the recent rate cut as a political measure in line with what the Fed has been doing since the election of the current administration). But ... the interviewer doesn't allow the conversation to go into how he would stay ahead of that inflation (only by shorting?).

In the 1970s the stock market on average stayed flat (and dramatically declined on an adjusted basis). From the late 60s until Reagan cut taxes you would have been better off with your money in a money market. Is that why there is 7 trillion in MMs today?

Is this why we have the current market bubble? No one trusts bonds while most want their capital "working?" Or is it because people also believe that artificial intelligence is going to provide productivity growth that surpasses the burden of debt? Because if it doesn't then this market, on an inflation-adjusted basis, crashes like it did in the 1970s.

Jamie Dimon has said that he believes that we are already into WW3, which I also believe is true. What does that sort of escalation do to the stock market? How do you increase spending (for a world war) when spending is already out of control? Do you buy defense, material, and energy stocks while shorting the rest?

I do believe that the Fed will soon be buying the longer dated treasuries, so I'm not sure that shorting them is a good idea. As we know, Fed intervention would be inflationary as it increases the money supply. In fact I can't see anything that has happened over the last few years, nor anything proposed, as being anything but inflationary. The 2% target is a joke. They'll have to cook the books or shut down the economy, which would not be good for the stock market.

 

[bdgan]

Jones says he would short the long end of the treasury market. I would agree as I see uncontrolled inflation as the likely scenario (and the recent rate cut as a political measure in line with what the Fed has been doing since the election of the current administration). But ... the interviewer doesn't allow the conversation to go into how he would stay ahead of that inflation (only by shorting?).

In the 1970s the stock market on average stayed flat (and dramatically declined on an adjusted basis). From the late 60s until Reagan cut taxes you would have been better off with your money in a money market. Is that why there is 7 trillion in MMs today?

Is this why we have the current market bubble? No one trusts bonds while most want their capital "working?" Or is it because people also believe that artificial intelligence is going to provide productivity growth that surpasses the burden of debt? Because if it doesn't then this market, on an inflation-adjusted basis, crashes like it did in the 1970s.

Jamie Dimon has said that he believes that we are already into WW3, which I also believe is true. What does that sort of escalation do to the stock market? How do you increase spending (for a world war) when spending is already out of control? Do you buy defense, material, and energy stocks while shorting the rest?

I do believe that the Fed will soon be buying the longer dated treasuries, so I'm not sure that shorting them is a good idea. As we know, Fed intervention would be inflationary as it increases the money supply. In fact I can't see anything that has happened over the last few years, nor anything proposed, as being anything but inflationary. The 2% target is a joke. They'll have to cook the books or shut down the economy, which would not be good for the stock market.

I'm old enough to remember Greenspan talking about irrational exuberance during the .com bubble but this was different. A majority of those companies weren't profitable and many failed. Most of the top AI companies included in the indexes are quite profitable (Nvidia, Microsoft, Amazon, Alphabet). They just might be overpriced.

I don't think the Fed will be buying long term treasuries anytime soon. The Fed's balance sheet was $4 trillion before covid but grew to $9 trillion during covid. They've been reducing the balance sheet lately and their balance is down to $7 trillion. I can't see them taking that number back up while they're lowering short term rates.

Rumble was always a big MMT guy. Haven't seen him post lately.

 

[KnightWhoSaysNit]

I'm old enough to remember Greenspan talking about irrational exuberance during the .com bubble but this was different. A majority of those companies weren't profitable and many failed. Most of the top AI companies included in the indexes are quite profitable (Nvidia, Microsoft, Amazon, Alphabet). They just might be overpriced.

I don't think the Fed will be buying long term treasuries anytime soon. The Fed's balance sheet was $4 trillion before covid but grew to $9 trillion during covid. They've been reducing the balance sheet lately and their balance is down to $7 trillion. I can't see them taking that number back up while they're lowering short term rates.

Rumble was always a big MMT guy. Haven't seen him post lately.

The hardest thing in evaluating stock prices today is the balance between technological growth tailwinds versus debt interest headwinds.

The money supporting those profitable AI companies is invariably a drain on all of the other companies. The overall index is still a good marker, and apparently some on Wall Street project 3% returns over the next 10 years from the S&P, probably the result of the speculative bubble that supports the current valuation -- the starting point for the next 10 years. That is less than fixed income, probably the reason so many are so content to leave money in short term treasuries that still pay higher than longer dated bonds.

The Fed balance sheet can go to infinity, and it will. Every discussion of this matter invariably involves some sort of fuzzy time horizon. No one knows the timing of hitting the fiscal cliff, and what that will do in creating a market crash.