"There's no such thing as a risky asset, only a risky price."
From Johnston’s substack:
“No one expected so much uncertainty to come out of that press conference.” - Gundlach
“The markets were uniformly expecting a 0.25 basis point cut today. They had been as close to certain as possible, yet when the cut was announced, everything went down with little restraint. One can only wonder why, when a certainty becomes certain, no one, apart from sellers of the Dow Industrials Stock Index for seven days running recently, acted ahead of it. At any rate, everything went down: stocks, metals, bonds, FX and bitcoin.
The only interest rate that went down was the one the FOMC controls.”
I wasn’t around much on today’s “Fed Day!!!™”, so I missed the fun…Turns out I outperformed 3 of these 4 indices. Yay!
If this was May 1, 1985, a 178.45 point loss would’ve made the S&P 500 negative.
Some perspective:
I wasn’t planning on posting today, but I have enough interesting charts and quotes that I might as well do a paid subscriber-only post, in case things in the market go pear-shaped.
Grok tells me that record for the number of down days in a row for the Dow 30 is 11, in late September and early October 1974. Today we hit ten days in a row.
“US Futures Stabilize After Sharp Market Selloff”
I’ll refer you to one of my posts from October 2023, where I charted out the 2007-2008 and 2000-2003 rate cut cycles, which were fun.
Everything below was written before today. Sláinte!
Job Openings: Total Nonfarm
Apple at 10x Sales
Then again, Nvidia is trading at 28x sales, so Apple is a value stock…
Growth vs Value:
"What are the worst investment hypes in history?"
Less Cash on the Sidelines!
Nobody wants non-U.S. stocks
And Bitcoin ETF’s apparently now have more assets than gold…
"Gold is not vulnerable to 51% attacks."
Seems like a frothy time.
Retail Sales Seem Sluggish
Except for autos…for what it’s worth, these are not CPI-adjusted numbers.
Saving this for posterity:
“You shouldn’t own any fixed interest securities. None. Inflating away debt means destroying the purchasing power of fixed income securities. There may be rallies, but fixed income is in a long bear market. Bond bull and bear markets move in about 40 year periods, and now we are into year 3 of the current bear market. You can lose a fortune in real terms over the long term. Therefore: No bonds. Period.”
Dan Rasmussen
“What do other people think they know that might not turn out to be true that I could profit from? How can I take the other side of the bet. I think the easiest way to do that is to look for hubris, because hubris is obviously very amply represented on Wall Street. If we can think of ourselves as taking the other side of the bet, what we want to do is consistently look for places where consensus optimism or consensus pessimism is so strongly felt that the market is either wildly overvaluing or wildly undervaluing a potential future that could occur.”
“the intersection of good companies and companies that borrow at 12% is very minimal”
“Everyone I know that works in private equity has basically the same resume. They learn the exact same things at the exact same business school.”
“You can learn almost nothing about the future growth of a company by looking at its historic financial statements.”
Private Equity
Crying Wolf During Bubbles
“People we think of as great investors today, they endured a period of underperformance where what they were doing was wildly out of favor. They were patient, and then it worked and they were vindicated.”
"Successful investing is about having people agree with you...later." - Jim Grant
Louis-Vincent Gave
“What you've seen is China basically all of a sudden take control of pretty much every industrial vertical out there, and yes China's Trade Surplus moved from 25 billion a month to 80 billion a month where where we stand today. Now people look at this and say, oh, well, you know they're promoting exports versus versus domestic consumption, but what they're first and foremost doing is promoting independence, resiliency, and making sure that the western world can't trip up their growth.”
“It's the law of unintended consequences at work. We thought we would trip up China by banning them from semiconductors, and what ends up happening is they get down to business, they invest more, they work harder, they put enormous amounts of human capital into solving equations, and on the other side they end up stronger.”
“If your country, if your policy makers are saying I'm going to embrace a set of policies that ensures there's going to be higher inflation from here on out, why would you ever want to own the bonds there? I think that's what the market is waking up to. That's why you've seen the biggest sell-offs in places like France, Germany, the UK, the US. Today, if you have to own bonds, you want to own them in Australia.”
“For D.C. is the realization that in a war with a major military power like Russia, the US now can no longer produce the weapons. When Russia invaded Ukraine, the combined western world - I'm French - we said to Ukraine, stand up and fight. We'll provide you all the weapons, Russia is a gas station masquerading as a country, we're going to turn the Ruble into rubble, and then within 6 months we found out that Russia was outproducing the combined western world in artillery shells 3 to 1. Russia was out producing the U.S. in tanks, it was out producing U.S. in artillery pieces. I mean, you name it, and Russia was out producing us, and then D.C. started to look into it and said, hold on for every one ship that the U.S. produces, China can produce 200”
“I think we could ask the question - can the U.S. be the world's military hegemon when it produces less than 4% of the world's steel? The answer is no, as we're finding out with this war in Ukraine. I think in Washington D.C. the realization is hold on, we have to reindustrialize.”
Counterpoint on Bonds: “David Giroux has cut way back on stocks and increased bonds in his top performing T. Rowe Price Capital Appreciation Fund. He explains why stock prices are scary and bonds look better than most stocks in 2025.”
“About $500 billion of CRE mortgages will mature in the next year “and a significant portion of them are going to go into default,” Florida Atlantic University’s Cole said. “There are going to be fire sales. They’re gonna put more downward pressure on commercial real estate prices across the board.””
“There’s starting to be some capitulation,” said Robin Potts, the chief investment officer at the real estate unit of special situations investor Canyon Partners LLC. “Borrowers who aren’t making payments can’t extend forever.”
“Notice also on the chart that cash levels at the largest U.S. banks were a sea of calm for more than two decades prior to the financial crash of 2008, but since that time cash assets have displayed wild gyrations, rising sharply then precipitously plunging.
It should provide no comfort to Americans that the wild gyrations on the chart above are a product of the central bank of the United States (the “Fed”) inserting itself, time and again since December 2007, into bailing out the trading houses on Wall Street…”
“These 30 retailers have reported the largest number of store closures in 2024, according to Coresight Research. More than 7,100 locations are on target to be shuttered by year-end, a 69% jump from a year earlier.”
The Bitcoin
“If you follow the companies on the BTC standard, they all push as aggressively as possible for any and all companies to follow them into the BTC standard. In particular, you’ll see them pushing for deep pocketed corporates (like Microsoft) or sovereign governments (particularly the U.S. / Trump administration) to buy Bitcoin / create a Bitcoin strategic reserve. While the BTC standard companies say they’re going to HODL their BTC forever and want these companies / sovereigns to do it for national security purposes, the skeptic in me can’t help put wonder if this is simply an attempt to get a big buyer to give the HODLers exit liquidity (and their strategy may be working; the Trump admin certainly seems open to anything the crypto bros want them to do!).”
Is the Middle Class Still Attainable?
Good piece by Tom Owens.
“One critique of our cultural moment is the unattainability for young people of the American dream, or what we might more accurately call the middle class — which for shorthand I’ll define as the cost, relative to income, of owning a home and modest, reliable transportation. Is the malaise of much of Gen Z due to moral defects, as some members of older generations claim, or is this malaise simply a rationalization of basic economic hurdles to what came easier in previous eras?
As one of the youngest cohorts of Gen X, I entered real adult life around the year 2000. In January 2001, the median home price in the United States was about $140,000, according to the National Association of Realtors, whereas median household income was around $42,000 according to the Census Bureau. This gives a ratio of 3.33. Modest, reliable transportation, which I’ll define as a Toyota Corolla, had a new MSRP of about $13,000. Thus the total cost of a “starter life” was about 3.64 times the annual median income.
In September 2024, the median price of a home was $404,500. The cheapest Toyota Corolla has an MSRP of $22,000. Median household income was $80,610 in 2023, and bumping this 3% to estimate a 2024 figure yields around $83,000. The “starter life” to median income ratio has risen to 5.14; I’ll call this the “Life Difficulty Index.” Things are indeed much more expensive for the rising generation, and this is without considering their increased student loan burden…
[Hedonic-Quality Adjustments to CPI:]
Ultimately, people don’t really care if their car has more airbags and a backup camera, or if their house if more energy efficient. What they care about is whether the money they earn is sufficient to allow them an independent life and not feel like a loser compared to their parents at comparable ages…
It’s quite obvious, yet again, that our economy seems intentionally designed to harm young people for the benefit of older asset owners…
Nationally, the Trump movement represents the resentment of average Americans who feel these frustrations. We can hope that a new industrial and immigration policy — and I would add a monetary policy5 that cares less about the net worth of older asset owners (let the housing market crash!) — can make the labor of the average American valuable enough again to afford a middle-class life. As Tucker Carlson once put it, his politics is whatever policies result in 100 IQ high school graduates being able to buy a house, two cars, and raise kids on a single income. We can wish the New Right good luck in achieving these goals long-term.”
A good source of interesting links is Credit Bubble Stocks.
The Clock Strikes Thirteen
Good piece by Glenn Harlan Reynolds
“In law we talk about the proverbial thirteenth chime of the clock, which is not only wrong in itself, but which calls into question everything that has come before. Most of our institutions have been chiming thirteen for quite a while, and people have noticed.
But it’s not enough to notice. Soviet citizens knew their system was founded on lies, too, but the system kept them isolated, unaware that so many of their fellow citizens felt the same way, and unable to come together to act.
This technique, used by totalitarians of all sorts, is called “preference falsification,” in which people are forced to profess belief in things that they know not to be true. If the powers that be are good at it, virtually every citizen can hate them and want them out, but no one will do anything because every citizen who feels that way thinks they’re the only one, or one of a tiny number….
In America, the left spent years bullying people into accepting “woke” ideas on race, gender, and politics. There’s considerable reason to believe that a majority of Americans never accepted these ideas, but between constant media repetition, and the risk of being mobbed and canceled if you disagreed with them, most people for years were afraid to stand up.
But two things put a stop to that. One was Donald Trump’s election. The other – and the two are related – was Elon Musk’s purchase of Twitter, now X, which is now a free-speech platform with roughly equal representation of Democrats and Republicans. Both had the effect of blowing up the lefty bubble and letting people realize that they, not the woke, were the actual majority…
Since the election, I see pushback against woke ideology in all sorts of places. But what’s really interesting is that the pushback started not with the allegedly freethinking educated classes, but with the working class that made up the core of Trump’s movement…
It used to be, of course, that the lower and middle classes were stuffy and constrained by social convention while the freethinkers at universities and in the ruling class got to experiment with unconventional ideas. If their experimenting got enough success, then it might eventually filter down to ordinary people…
But now it’s our ruling class that is hidebound by political correctness, and it takes movement by the masses to give it permission to express a controversial view. That’s a major change, and it’s one that the ruling class isn’t likely to appreciate much.”
“There would appear to be no precedent for a chief executive pardoning the entire federal government, or we would have heard of it by now. At the conclusion of the Civil War, Abe Lincoln issued a conditional pardon to Southerners — they had to take an oath of allegiance to the Union — but it did not include military officers and high-ranking Confederate officials. The blob of our time is a different breed of porpoise.”
“Just had a fascinating lunch with a 22-year-old Stanford grad. Smart kid. Perfect resume. Something felt off though. He kept pausing mid-sentence, searching for words. Not complex words - basic ones. Like his brain was buffering. Finally asked if he was okay. His response floored me. "Sometimes I forget words now. I'm so used to having ChatGPT complete my thoughts that when it's not there, my brain feels... slower." He'd been using AI for everything. Writing, thinking, communication. It had become his external brain. And now his internal one was getting weaker.
Made me think about calculators. Remember how teachers said we needed to learn math because "you won't always have a calculator"? They were wrong about that. But maybe they were right about something deeper. We're running the first large-scale experiment on human cognition. What happens when an entire generation outsources their thinking? Don’t get me wrong, I’m beyond excited about what AI and AI agents will do for people in the same way that I was excited in 2009 when the App Store was launched. But thinking out loud you got to think this guy I met with isn't the only one that's going to be completely dependent on AI.”
Get off my lawn
“Rules that relate to dogs—barring them from specific locations, or requiring leashes—exist for a reason. And society seems to be getting a bit collectively annoyed by the small but very visible group of dog owners who think these rules don’t apply to them…
I was at a playground with my older child, which was located next to a small green field meant for kids to play soccer. The entire playground (including the field) had a no-dogs rule. I’m not talking about a leash rule, but a strict rule against any and all dogs. The field was also pretty small, and there were other bigger parks nearby that allowed dogs. But somehow, multiple dog owners have shown up at this no-dog location, explicitly designed for children, and let their dogs run free without a leash. One owner in particular came in with a shredded pitbull that looked like it was three shots deep of The Substance, and played fetch with it by throwing a ball directly into the children’s playground structure.
Typically, there’s nothing parents (or any other law-abiding citizen who doesn’t want to be bitten) can do in a situation like this. Reddit is full of questions from worried parents or responsible dog owners asking how to defend against unleashed dogs. Some people will suggest carrying a gun at all times, but I feel like “bringing a loaded gun to the playground in case I need to shoot a dog” is a bit much. Other people will suggest calling 911, which feels like an overreaction—albeit a tamer overreaction than shooting someone, but still uncalled for. But calling the non-emergency line, or “writing your local representative” won’t do anything at all. And most parents don’t really want to confront a dog owner, especially one with an unleashed pitbull at their feet (I know it’s “the owner, not the breed,” but frankly, it doesn’t matter when an unleashed dog is barreling toward children at the park. I’m not like “hold up, first let me acknowledge this dog is the product of its owner,” while I’m in the process of being bitten.) So generally, when parents have found ourselves in the position of being near an unleashed dog in a location where it’s illegal, our only option is to kowtow to the law-breakers and leave, unintentionally reinforcing a twisted version of justice where whoever is more likely to maul the other gets dominion over the public space.”
"After almost 20 years, I am unhappily having the growing notion that UFOs are forever going to be in the same category as ghosts and haunted houses: We'll always hear of such vivid accounts, sightings...but never get the proof."
- Ralph Newman, Incident At Exeter
The bitcoin bros who think the same demons who control the central banks and currencies don’t have ultimate dominion over their Precious? Fucking retards.
Another great piece! The dog article really resonated with me. I hate the “dog people” too! We played little league baseball for years and people were always bringing their dogs. “Everyone loves Scruffy!”