Risk Presents Itself
Shockingly bad.
Here’s a recap of today’s market action:
“We don't try to time the market, but we do time the value.”
“The Federal Reserve's preferred inflation measure" has been above their made-up 2% target since April 2001.
Their legal mandate is "stable prices," not 2%.
The Fed has presided over an extremely regressive tax - which they sought! - that has materially and permanently hurt hundreds of millions of Americans.
Because Central Bankers agreed to monetize their debt, as Kevin Warsh explains:
The Fed’s preferred inflation target:
Here are the "financial experts" calling for hedge-fund backstops: Anil Kashyap at the University of Chicago, Harvard University’s Jeremy Stein — a former Fed governor, Harvard Business School’s Jonathan Wallen and Columbia University’s Joshua Younger.
Guess which of these ‘financial experts’ worked at a hedge fund?
”Former Fed Official Stein Brings Credit Bubble Expertise To Hedge Fund BlueMountain”
Another expert advocating hedge fund bailouts:
"Josh Younger is currently a Senior Policy Advisor at the Federal Reserve Bank of New York... Before joining the New York Fed, Josh held various roles over more than a decade at JPMorgan Chase & Co."
The other two “experts” look like they basically went to college and never left.
“I don't think recessions are necessarily a bad thing. Creative destruction exists for a reason. You don't want an economy where you have relatively inefficient and failing firms that just stumble along forever as zombies. That's not a good way to run things, and using monetary or fiscal policy to immunize your markets against volatility doesn't get rid of the volatility - it just hides it, and then eventually it's going to show up all at once. See, for instance, 2008.”
“As he crept toward death in 1987, [James] Angleton was less bound by the loyalty oaths of the past, and he began to talk about his career with a surprisingly raw clarity. By then, his lungs were cancer-ridden from a lifetime of incessant smoking, and his sunken cheeks and receding eyes gave him the look of a fallen saint. The Catholic Angleton had always needed to believe in the holiness of his mission. And now, as he faced the final judgment, he felt compelled to make confessions, of sorts, to visiting journalists, including Joseph Trento. What he confessed was this. He had not been serving God, after all, when he followed Allen Dulles. He had been on a satanic quest.
These were some of James Jesus Angleton’s dying words. He delivered them between fits of calamitous coughing—lung-scraping seizures that still failed to break him of his cigarette habit—and soothing sips of tea. “Fundamentally, the founding fathers of U.S. intelligence were liars,” Angleton told Trento in an emotionless voice. “The better you lied and the more you betrayed, the more likely you would be promoted…Outside of their duplicity, the only thing they had in common was a desire for absolute power. I did things that, in looking back on my life, I regret. But I was part of it and loved being in it.”
He invoked the names of the high eminences who had run the CIA in his day—Dulles, Helms, Wisner. These men were “the grand masters,” he said. “If you were in a room with them, you were in a room full of people that you had to believe would deservedly end up in hell.”
Angleton took another slow sip from his steaming cup. “I guess I will see them there soon.”
- David Talbot, The Devil’s Chessboard
“Gold is gold. Only the "flat-earthers" think gold is going up. Gold is actually the only thing that is not moving. Everything paper is in a downtrend and the illusion FX, bonds and stocks are trending regardless of fluctuations ignores decades of price history.”
“Propaganda is a monologue which seeks not a response but an echo.”
So the markets are pretty boring so far this week, right?
I actually love volatility, even though I am long and not short. The market gave, and the market hath taken away. Hakuna Matata.
I realize that this missive, like most, actually has a ton of content if you dig into the links, so remember that it’s a buffet, not a shot of booze. It’ll be a week or so before the next post anyway I imagine. More signs and wonders await us!
I’m at times overwhelmed with information. I can’t get involved in every outrage or rabbit hole out there, as much as some want me to. I just do what I do.
Anyway, below we have a JFK hearing video wrap-up - for reference - some prescient comments from Kris Sidial, Vince Deluard, TARIFFS(!!), Tom Hoenig, Peter Lynch, Steph Pomboy, Dan Rasmussen, Chris Bloomstran (with some interesting comments on Berkshire), Jim Bianco, John Comiskey (on the FHA nonsense), Nick Bryant (on our government letting very bad guys get away again,) bombing Yemen, and some other stuff.
Jefferson Morley at the JFK hearing
James DiEugenio
Kris Sidial (March 19)
On hedging…
On Positioning…
Prescient
“I think like S&P one-year vol is quite attractive. It's like there's no budge1 at all. People are just so used to this view of, well, markets are going to recover, and they're going to go up. Look at S&P 6-month vol, down 10% out of the money down 15% out the money - completely underpriced, like mid-teens on some of this stuff. So I think that just there has been no appetite to hedge any of that type of risk, and I think that if there was ever a year where that risk presented itself, it feels like this year is one of those years.”
“I decided to no longer follow the the tariffs, because I have a job, and I need to be able to think, instead of just reacting emotionally to whatever comes through.”
Tariff Tantrums
Nothing new under the Sun.
For some apples and oranges perspective above, our imports from Germany add up to about 40 days of Fed QE.
“If you haven’t noticed yet, tariffs are deflationary. Just look at the red on your screens.”
I lost a lot on paper today, just like I recently gained a lot on paper. To paraphrase Peter Lynch, if you can't stand the heat, get out the kitchen.
People who complain about stock declines remind me of a poker player who blames the dealer or other players for his losing hand.
Is this your first time playing? Grow up.
I posted this near the close Thursday just to be ornery:
Everyone seems so incredibly upset about the tariffs.
Lots of weeping and gnashing of teeth, like 2018, but more serious.
I don’t really have anything to add on the topic at this point, other than that the status quo of the past 50 years hasn’t been working for most Americans, so we’ll see how this shakes out.
Maybe Trump’s approach will work out, maybe it won’t.
As I joked, if it doesn’t work, the Democrats can take Congress in 2026 and then all our problems will be fixed!
I was reminded of Gary Brode’s comments a few weeks ago:
“What the administration is trying to do right now is they're desperately trying to reduce bond yields, and they don't care - they will crash the stock market to push money out of high-risk equities and toward the perceived safe haven of bonds…
The thing that I think is really interesting is in his first term, President Trump used the stock market as a kind of a report card to say, look, I've done a great job managing the economy, the stock market is up. To give you a sense of the level of urgency here, they're taking actions they know are going to make stocks go down, and for a guy who really likes to use the stock market as a report card, President Trump is basically saying, you know, send it down right now. Kill stocks, crash stocks right now. We'll deal with the rest later, but we need to refinance this. So I think that's a big chunk of what we've seen.”
Anyway, hard for a caveman like me to get too worked up yet over - for example - the “sharply lower” dollar:
Then again…
Tom Hoenig
“We don't have a responsible fiscal policy, and we have a history of a very less than responsible monetary policy, and we have cheaters in trade - they and us - so with those conditions it's a much more difficult problem to solve, and tariffs are one element of it, but so is good fiscal policy and good monetary policy.”
“You have real interest rates below 2%. In my opinion that's not restrictive.”
“You can't just solve everything by printing more money. You need rational policies, because printing money allowed the debt to get to where it is today, no question about it.”
If you haven’t seen, here’s great 2021 article about Hoenig: The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed
“Why ‘Celebration’? It’s saying, ‘I’m happy,’ that’s all.”
Peter Lynch
“You should study history, and history is the important thing. What you learn from history is the market goes down. It goes down a lot. The math is simple. There's been 93 years, a century - this is easy to do - the markets had 50 declines of 10% or more, so 50 declines in 93 years - about once every two years the market falls 10 percent. We call that a correction. That’s a euphemism for losing a lot of money rapidly - we call it a correction.
So 50 declines in 93 years. About once every two years the market falls 10 percent. Of all those 50 declines, 15 have been 25% or more. That's known as a bear market. We've had 15 declines in 93 years, so every six years the market's gonna have a 25 percent decline. That's all you need to know. You need to know the market's going to go down sometime. If you're not ready for that you shouldn't own stocks.”
Peter Lynch, 1994
Bill Ackman: These Top 7 Positions Make Up 83.36% Of His Portfolio (YTD returns)
Brookfield (BN) -10%
Restaurant Brands (QSR) 0%
Chipotle (CMG) -17%
Howard Hughes (HHH) -3%
Alphabet (GOOG) -18%
Nike (NKE) -16%
Hilton (HLT) -9%
Watching these stocks may indicate when the Fed will be forced to step in to save Bill Ackman. (Returns via Morningstar as of mid-day 3/31/25, before the deluge.)
“Blackrock is recommending a 50/30 portfolio with 20% PE. A cynic might say…something bad is about to happen to PE.”
- Alyosha
These charts may greatly influence Powell:
I found the deflation!: Dollar Tree Is Selling Family Dollar for $1 Billion
“Nearly 10 years after buying Family Dollar for about $9 billion, Dollar Tree announced it would sell the retailer to two private equity firms.”
The sad part really isn’t Dollar Tree's $8 billion loss - it’s that with private equity at the helm, Family Dollar will likely be bankrupt in a few years.
Stephanie Pomboy
“I was arguing last year that we were actually in recession, and pretty much the only indicator that didn't reflect that was the real GDP report, and to believe that, you have to buy into the government's counting of inflation, which I don't.”
“We're finally hearing I think what we have long thought to be the truth from somebody [Scott Bessent] who's in a position of power, who's basically saying - look, the system's been juiced, it's been deformed and distorted. We've been doing everything we can to try to make it eternal Summer, and you know what? Winter is a natural part of of the seasonal cycle. We need to have that in our economy as well. This thing has been so unnaturally propped up - part of what we're doing here is trying to get back to a greater sense of normal and sustainable health, and yeah, we're breaking some things. We're removing some of the artificial supports. There's going to be some repercussions for that, but that's a good thing, and we need to get out of this delusion that we can put off recession forever, because what we end up doing is deforming everything, creating all sorts of imbalances, huge wealth divides, and stuff like that. We end up making the corrective forces way harsher and larger than they would need to be if we just followed a more natural cycle.”
“I think the question is, are they prepared for the magnitude of hurt that will be required to expunge the excesses that have been built up - not just over the years post covid - but pretty much since the establishment of The Fed Put with Alan Greenspan in October of 1987.”
“the stock market could get cut in half tomorrow and still be overvalued”
Dan Rasmussen
“Software is one of the best businesses in the world - if not the best business in the world. It's infinitely scalable, zero marginal cost, with no capital intensity. I think what's sort of fascinating is that all these stocks have gone massively up on the news about A.I, but I look at it and say, well, A.I. is a capex game, right? They've gone from the best business in the world to a highly capital-intensive business - they're turning knowledge work into a manufacturing problem. You need to have all these GPU’s and servers, and a data center that's powered by electricity. You've gone from the best business in the world to the worst business in the world, and investors have somehow rewarded you for it.”
“The valuation gap between the U.S. and international just reached such crazy levels. The optimism around the U.S., right? If there's just one simple rule, it's like, when there's too much optimism, you know you've got to take the other side of the bet.”
“You can trust that a thousand years from now - will U.S. Treasuries exist? Who knows, but gold will exist, and it will probably be roughly as valuable.”
“One of the striking things is that growth rates don't persist. Take the top 10%, the top quartile of growers and look at how they grow over the next three or five years, and there's no relationship. Zero. It does not predict anything. I think this is one of the hardest things conceptually to get your head around, which is that earnings growth is completely unpredictable.”
Chris Bloomstran
“For the last two years I look at our portfolio on a daily basis, and in any day that the NASDAQ's up, we're invariably down, and vice versa, and the exact same thing happened in 1998 and 1999.”
“If you look at it over 25 years - and this is stunning - the index companies have have spent more than half of cash flow from operations buying back their shares, and they have not reduced the share count. The share count is dead flat for 25 years. That's stunning. So if you're not accreting your ownership with a lower share count, and half of your cash from operations is going out the door to buy shares back, who's getting rich?”
“To me the S&P makes sense for the family that's going to sit down and dollar cost average over a lifetime. Occasionally you're going to buy some stock when it's cheap - sometimes it's going to be fairly priced, sometimes expensive - but you're going to save a lot of fees. You're going to save a lot of frictional costs, and it makes sense if you're uninitiated. It's terrible advice at a moment where you're sitting at a secular peak, where you're 26 times earnings, where the deck is stacked against return, when there are way more favorably-priced attractive things to do with capital. If you're a pension fund or you're somebody that has capital today, owning the cap-weighted S&P is a terrible, terrible thing.”
On Future Returns
“For the first time really ever, Berkshire has risen up to the level where it becomes a potential source of capital.”
“The Poison Legacy of Janet Yellen”
“Rationally, but not very bravely, Janet Yellen decided, well, if I risk losing my job, I'm just going to do the Brazilian thing, and finance everything on the credit card. Put everything in bills.”
Jim Bianco
"They want prices to come down so that they can afford the necessities of life!"
Lower prices, a rich economist’s worst nightmare!
“It’s important to really discuss what's going on, because the bottom half of income - that 54% or 55% that cannot come up with $1,000 in savings - they put Trump in the White House, and they are demanding something in return for that, and by the way, that demand is not another 20% the S&P, because they don't own it.”
“A recent Fed study came out that the top 10% of income accounts for 50% of retail sales, so that half of all the spending in the country comes from 10% of the people, and that's the most concentrated it's ever been. That's because of years and years of asset price appreciation that has basically papered-over a lot of the ills that we've had, and it's also created the partisanship in this economy - you know, the difference with with the K-shape. Why did the top 10% get so wealthy? Money printing, zero interest rates, accommodative policies - all designed to push up asset prices…the problem with that is it's put us in debt, it's given us the big deficits, and it's given us a lot of other problems that we've had, and that's what we have to detox ourselves from in order to get this economy back.” [Cantillon Effect]
Theoretical Equity
John Comiskey
“The story on the [mortgage] modifications was a little bit striking, and that's when I dug in and ultimately said, okay, well, how are the modifications that have been performed over the last say two, two and a half years performing? And those are the ones that are that are shockingly bad. Those are the ones that touch on 70% delinquent. Fifty-percent, 55% serious delinquent. When you look at those modifications, that's where the real problem within the FHA portfolio is.”
“In particular, debt to income ratios today are in the aggregate considerably higher than they were even going back to the global financial crisis. There definitely is some truth to the FHA has kind of taken over the role of of the new of the new subprime.”
“How long until the FHA cuts it off and say enough's enough?”
“These incredibly, ridiculously lax FHA loss mitigation procedures that have been this way since - we'll say 2021.”
(And what was the motive for extending this nonsense on January 16, 2025?)
Nick Bryant
“The documents Pam Bondi released were a joke. They gave us no new information. Actually when I put the black book on the internet in 2015, and also put a bunch of flight logs on the internet in 2015, I offered far more about Epstein's perpetrators or the names of Epstein's perpetrators than our Department of Justice did last week which is really really galling for someone like me…who really cares about the welfare of children.”
"Why are a bunch of child molesters important to national security?”
Yemen
Fifty or so dead and a residential building collapsed to maybe get one guy in a country we are not Constitutionally at war with (but have been bombing for ten years.)
Armed Madhouse – Bombing Yemen
“Yemen has been heavily bombed for many years. The U.S. enabled the bombing of Yemen from 2015 until 2024, and it is now bombing Yemen directly. I will examine the history of these bombing campaigns and explain how they reflect a dysfunctional and delusional approach to the use of armed force in U.S. foreign policy. The bombing of Yemen can be divided into two phases: the campaign against the Houthi-led faction in the Yemen civil war and the U.S./Israel campaign resulting from the Gaza war. In neither phase has it been military effective…
The pointless bombing of Yemen is a demonstration of a militarized U.S. foreign policy that has become detached from the political, geographic, and economic realities of the modern world. The U.S. cannot readily invade and occupy Yemen, and it is unlikely to end the Red Sea blockade by force. Performative bombing strikes aimed at arousing patriotic fervor in a war-loving U.S. electorate are inflicting gratuitous harm on thousands of Yemenis while increasing the probability of a wider Mideast War. Inflicting death and destruction on foreigners to no avail is not considered a problem in Washington; it is considered an accomplishment because it serves those who benefit materially and politically from foreign wars, and it feeds the appetite for violence of an ill-informed public.”
"Budge" generally refers to a slight or minor change in the implied volatility (IV) of an option, or the underlying asset's price
You got it all in this post!
This was excellent, Rudy!