Debt Markets Get Trampled

Anyone with half a brain knew there would be hell to pay for locking down the economy and simultaneously printing and spewing out trillions of dollars of confetti money.  The bill has finally come due.

Did you see the latest consumer price index (CPI) report?

According to the government bean counters consumer price inflation, as measured by the CPI, increased in September at an annual rate of 8.2 percent.  While this is down slightly from several months ago, the year-over-year increase in prices is still near a 40-year high.

Stock market investors celebrated the news like mindless idiots.  On Thursday, after the CPI report was released, the S&P 500 rallied more than 2.5 percent.  Perhaps stock market investors were elated the CPI wasn’t even higher.

More important than the stock market is the debt market.  Following the CPI release, Treasury yields spiked up.  Bond investors know what’s coming.  Specifically, more rate hikes from the Federal Reserve.  They sold accordingly.

Because as interest rates rise, bond prices fall.  This inverse relationship, which has been in existence since financial markets were invented, is wreaking havoc on debt investors.  The value of the paper they’re holding is vaporizing in their hands. Continue reading

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Who Else Bought BlackRock’s LDI Swindle Products?

Finding and filling gaps in the market is one path for entrepreneurial success.  The first to tap into an unmet consumer demand can unlock massive profits.

But unless there’s some comparative advantage, competition will quickly commoditize the market.  Profit margins will decline to just above breakeven.

“You should either be first or be better than your competition.”

We don’t know who the original source of this often-repeated business advice is.  Like most advice on the subject, it sounds smart while not being all that useful.

From our experience, finding and filling gaps in the market, and being better than the competition, is extremely difficult.  Even the most successful entrepreneurs fail more than they succeed.  And success in one endeavor doesn’t guarantee success in another.

Anyone who has ever developed and marketed a new product from concept through sale knows how difficult it is to achieve profitability.  For every good idea there must be a hundred bad ones. Continue reading

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Why Bonds Are Behaving Like Risky Assets

“When the [credit] delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.  Credit is ruined.”

– Garet Garrett, 1932, A Bubble that Broke the World

Down, Down, Down

Third quarter 2022 ends today [Friday].  We’re entering the year’s home stretch.  Thus, we’ll take a moment to observe where money and markets have been, so we can conjecture as to where they’re going.

To begin, United States stock markets are in an epic battle between bulls and bears.  For most of the year, the bears have been delivering heavy blows.  But the bulls have not taken their punches lying down.  Here’s a quick review of the three major U.S. Indexes…

After peaking out on January 4, 2022, at 4,814.62 the S&P 500 declined 24.46 percent to an interim bottom of 3,636.87 on June 17, 2022.  The DJIA fell approximately 19.71 percent over this time.

The NASDAQ’s decline commenced on November 22, 2021, at a peak of 16,212.23.  It then cascaded to an interim bottom of 10,565.14 on June 16, 2022, for a top to bottom decline of 34.83 percent. Continue reading

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Facing Down a Wrath of Biblical Proportions

“The LORD sends poverty and wealth; he humbles and he exalts.” – 1 Samuel 2:7

Holy Roll

An enterprising entrepreneur did a comedic graphic of Federal Reserve Chairman Jerome Powell captioned: “IN JPOW WE TRUST.”

You may have seen it.

The image shows Powell flamboyantly wearing a preacher’s robe and making an esoteric hand gesture with his right hand.  His face is grimacing like he’s passing a kidney stone.

His left hand holds up what appears to be an outwardly facing bible.  The scriptures are sparse and hardly legible.  But if you zoom in you can make out important prophecies like, “STOCKS ONLY GO UP,” “RECESSION CANCELLED,” “MONEY PRINTER GOES BRRRRRRRR.”

An American dialect of French is also used in several instances to express what happens to market bears and those who short stocks.  It’s the sort of thing best reserved for locker room talk. Continue reading

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