But that doesn’t stop AI from saying it is. Just a reminder that I’m back in the office and navigating the tidal wave of uncertainties that have captivated the markets recently. Earnings are adding to the volatility, stocks with favorable earnings curiously go down and unfavorable earnings, but positive guidance, they go up, and the rest are just earnings and the market seems too distracted to pay attention. Our investments that continue to represent a diverse strategy and are still good buffers to the volatility, and with little more than Fixed Income ETF exposure to 3mo Treasury Bills the sharp rise in interest rates has also had little impact. It’s nice that Treasury Bills are yielding 5% as well. There is also the potential for the uncertainties to be weaponized through our Algochums and Pindude armies’ day trading, and the huge amount of shorting being taken on by Hedge Funds. The latter I customarily refer to as Hedgefiends since most historically make more money on fees than profits.
I’ve returned to the office with the same technical
oversold condition that I left with. While there were some price increases of
the broad indexes, as interest rates moved the 10yr Treasury over 5%, a level
not seen in 16 years, impulsive selling ensued. That natural reaction was to
sell technology, but not to necessarily buy anything else. Hence the oversold
condition is diverse by sector, which I find curious. That’s because it’s
obvious that investing decisions are being sourced through technology, clearly
from the reactionary responses to external conditions such as rising rates,
inciteful narratives and other charged uncertainties. And as said conditions
reverse the interpretation is for markets to also reverse the impact. However,
while some correlation can be taken from the data, such as rising rates, the
rest have little correlation and virtually no historical causation. The only
good side to all of this is the analysts are feeding off the AI data, lowering
expectations, and when those expectations are better than expected, such as
with Alphabet (GOOGL) today, the unsubstantiated causes are not correlating
with the outcomes. I’m glad machine learning is part of the longer term aim of
AI to improve interpretation; I hope analysts can learn as well.
Just as I was leaving the office on October 11th,
the Consumer (CPI) and Producer (PPI) data showed higher than expected
increases. However, much of the core data, that excludes energy and food, the
outcome was fairly stable. Since that release of data, energy has stabilized,
and the consumer, while still remaining active is faced with increasing
interest rate obligations over credit cards, adjustable mortgages and
resumption of the student debt commitment. And the price increase in food is
finally getting some scrutiny in the press as being significantly higher than
prevailing inflation, getting some political interest as well. In September,
Retail Sales increased 0.7%, and Industrial Production increased 0.3%, both are
higher over the past year. Housing Starts increased 7.0%, and Existing Home
Sales declined 2.0%, both are lower over the past year, -7.2% and 15.4%
respectively. This continues to perplex the Fed, who will meet on November 1st
to vote on rising rates. For now, the only data that matters is Unemployment,
and if that shows any weakness, even marginal, the Fed objective, in my
opinion, could materialize over the next few months.
For now, patience in the face of distressing narratives
has never been more important than in recent memory. This isn’t a financial
crisis looming, the economy is chugging along and banks are only moderately
struggling due to rising interest rate exposure to balance sheets. But, with
even the Fed potentially raising rates at their next meeting, most of the
external dangers surrounding the potential of the US engaging in military
confrontation, and the growing dangers of dissention in our own country, while plausible,
are also historically prone to presenting shorter term perils to the markets,
as the world settles into its future, and with any luck, with more anticipation
than anger. For now, even in an oversold condition, it’s okay to refrain from
being too optimistic.