“You don’t bring me anything but down.” That Sheryl Crow lyric was running through my head this morning, as stock futures and Treasury prices both resumed their decline after yesterday afternoon’s typical post-Fed “relief rally.”
That’s what you must watch out for now. If you are reading this column you are smart enough not to waste your time in front of Fin TV during the day, but I occasionally catch clips on YouTube. Do not listen to any so-called expert telling you that this is “market volatility.”
No, no, no, a thousand times no.
What we are seeing here is a re-pricing of assets, not the occasional short-term mis-pricing which can lead to opportunistic buy points. This is not a volatile market, it is a declining market. That is a huge difference and one that can be very expensive if ignored.
The first rule to follow is that the stock market follows the bond market. Look at this chart and show me where you see volatility.
There is none. There is just a simple reverse ski-slope. Again, forget the 15-minute shimmies and look at the forest for the trees. Bloomberg’s US rates and bonds page is essential reading. In fact, today, I have been perusing the page so often that I haven’t even done the Wordle yet. First things first, I guess.
Look at the one-month and one-year changes. The yield on the 10-year UST has risen 53 basis points in one month and 184 points in one year.
That is contractionary, as the kids would say “AF.” You cannot spin that. Any Wall Streeter bloviating about a “soft landing” should be immediately muted this morning.
As you may have guessed, I have a model portfolio for that. It is SHORT. As my anti-Big Tech model portfolio, FKBGT continues on its majestic run, now up (i.e., the stocks within it are down) 45% since initiation midday 4/13, it is SHORT that is now in vogue post-Powell. SHORT has not exactly been as shrinking violet, with a 22.3% gain since inception on 4/11, but these are not dreamy flying-electric car names, they are the spine of America’s economy. And much like the nincompoops managing that economy in DC, across the country that spine is bent. Now, in addition, the spine will suffer under the increased financing costs of an extra 75 basis points, with more to come at the June and July FOMC meetings, it would seem.
Watch the 10 names in SHORT.
GM (GM) , Ford (F) , Stellantis (STLA) , Wells Fargo (WFC) , Bank of America (BAC) , Lennar (LEN) , D.R. Horton (DHI) , Progressive Corp (PGR) , General Electric (GE) , and Berkshire Hathaway (BRK-B) .
I have no particular animus against these names, unlike the horrible cesspool that is the social media world that comprises a big chink of FKBGT. I followed GM, F and Stellantis’ predecessor, DaimlerChrysler, for many years, and my mother was a stock broker for Wells Fargo for decades. Also, in the midst of constant obfuscation, I have been pleased to read the truth coming from BAC’s reality-embracing equity strategist Michael Hartnett, who – along with MS’s strategist Mike Wilson – has been dead right on this dead stock market in 2022.
No hard feelings toward any of those 10 companies in SHORT, just a hard backdrop for companies that make cars, build houses, and provide financing and insurance for those purchases to make profits. We are nowhere near the market’s acceptance of a profit recession. I will leave you with one more link/quote from my favorite source, John Butters and his most recent weekly FactSet Earnings Insight product:
For CY 2022, analysts are projecting earnings growth of 10.4% and revenue growth of 10.5%
Even Jerome Powell and Janet Yellen are not ignorant enough to believe Wall Street here. Indeed, much smarter actual participants in the economy, like Elon Musk, have a “Super bad feeling” about how this economy will react to higher rates.
Real Money readers are not feckless technocrats, which is why I love you guys. I learn 100x more from the reader feedback that I receive than from any numbers I crunch. Keep it coming (WhatsApp group access is via the phone number at the top of my linked spreadsheets,) and, for goodness’ sake, please see the forest for the trees. Get SHORT. It’s still not too late.
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