Who is lying between the stock market and the bond market?
Rarely seen, Bao Lao Ge unexpectedly put on the hawk skin, indicating that inflation is indeed too severe.
Indeed. The service sector inflation cannot be reduced unless there is a major recession. However, oil prices have started to rise and commodity inflation is resurfacing. The year-on-year inflation data may not be too bad, after all, the base of last year was quite large. But compared with 2019, the inflation in 2023 will inevitably be frighteningly high.
I believe that the current problem of service sector inflation is the result of the joint efforts of Chuan Jianguo and Bai Zhenhua, who have infiltrated and undermined the great achievements of the American imperialists. The two comrades have indeed done a good job, sabotaging the efforts of Clinton, Bush, Obama and other reactionary elements for many years. The current problem in the United States is that the Federal Reserve is completely powerless. The Federal Reserve can only choose between tolerating inflation or causing a recession. If they are afraid of both inflation and recession, the likely result will be Murphy's Law, where everything they are afraid of will come true and the economy will be stuck in stagflation. At present, the United States is only one black swan away from stagflation. Bao Lao Ge, hurry up and make your choice, don't dawdle. If you want to control inflation, raise interest rates by 50. If you want to protect the economy, pause interest rate hikes. The half-hearted approach of a 25 basis point interest rate hike may backfire.
Today, due to Bao Lao Ying's speech, the yield spread between the 2-year and 10-year government bonds has deepened. I just checked and it has inverted by 100 basis points! This is too exaggerated, indicating that the market is increasingly betting on an economic recession. Short-term bonds with high interest rates are betting on interest rate hikes, while long-term bonds with low interest rates are betting on interest rate cuts. If there is no recession, why would there be interest rate cuts? The more severe the recession, the larger the interest rate cuts. What kind of significant recession is the 100 basis point spread betting on?
But the stock market is not so pessimistic, which is quite strange. Interest rate hikes are a single blow to bonds, but at least a triple blow to the stock market.
1. Higher risk-free interest rates make capital more cautious about venture capital. Retail investors are the most daring, while large capital is the most risk-averse. If I have 10 billion, lying directly in the Federal Reserve account, earning 500 million in interest each year, wouldn't that be great? Why should I take the risk of losing my principal and invest in stocks? The money withdrawn from the stock market is the first blow.
2. Difficulties in financing are fatal for companies. How many stocks are there where the companies behind them can survive without financing? When interest rates rise, the risk appetite for capital decreases and financing becomes difficult. This is the second blow.
3. High inflation and high interest rates also have a significant impact on non-essential products. Currently, interest rates are high and inflation is not falling. Mortgage rates are rising, rent is rising, food prices are rising, gasoline prices are rising, medicine prices are rising, and utility bills are rising. The interest on credit cards is even more outrageous. The proportion of essential goods in personal disposable income will increase significantly, inevitably reducing expenditure on non-essential items. Cars, mobile phones, computers, appliances, and clothes, as long as they are not broken, just make do with them.
In the face of multiple bearish factors, the stock market can still maintain a high level, which is really strange. But as individual investors, we can only go with the flow. I don't know who is telling the truth between the stock market and bonds, so let's go and see. I'll continue to bet: for the sake of convenience, let's say TLT is $100 and SPY is $400. Let's compare their performance in 2024.
Currently, I'm still looking at short-term trading. I estimate it will be between 3930 and 4070. Sell high, buy low, and set stop losses and take profits. Unless Chairman Powell raises interest rates by 50 basis points or there is a CPI explosion, I don't expect a short-term crash. But I estimate that the CPI explosion will have to wait until next month at least, after all, data has a lag.
High-risk stocks:
$Tesla (TSLA.US)$ $NVIDIA (NVDA.US)$ $ARK Innovation ETF (ARKK.US)$ , as well as various junk stocks. Let me clarify that junk stocks do not represent junk companies. You can refer to the definition of junk bonds, which does not mean that those issuing companies are junk.
Opportunities outweigh risks: It's hard to say now, it's best to wait for a pullback to around 3950. I am bullish on recession-resistant and undervalued stocks. Currently, the industrial sector is relatively strong, and I have bought a little bit. $3M (MMM.US)$ , as well as $Industrial Select Sector SPDR Fund (XLI.US)$ . And there's $Costco (COST.US)$ I like this company. In addition, I think the anti-epidemic stocks are generally underestimated, including
$BioNTech (BNTX.US)$ $Pfizer (PFE.US)$ and
$Moderna (MRNA.US)$ . The recent low-profile of the COVID-19 virus may indicate that a big move is being prepared.
But there are some stocks that are resistant to recession, such as
$McDonald's (MCD.US)$ , which is currently too expensive. It is worth buying if it drops.
I bought TLT at the bottom of $100
$iShares 20+ Year Treasury Bond ETF (TLT.US)$ , and I reduced my position these two days, locking in a small profit of 2% and retaining a 10% bottom position.
ycs has been doing well recently, bullish on Japan, continue to maintain the depreciation of the Japanese yen, don't let us down. $ProShares UltraShort Yen (YCS.US)$
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FF-Rise : The previous analysis was good; the latter part of the stock operation is questionable
高贵的阿德莱德 OP FF-Rise : You're right, no one is sure about this kind of market environment. I'm also searching, so I'm just sharing; it's not stock selection advice, nor investment advice. Whether it's profit or compensation, I'll share it all. It's just an entertainment program. Everyone is having fun hehe
QMengColdJoke : Inflation is, on the one hand, insufficient supply; on the other hand, Biden and the Big Blue State are spending money indiscriminately, and are spending money by borrowing heavily (driving up M1, M2). The Fed's interest rate hike suppresses demand and explodes some high leverage, which in itself is correct. However, supply (aka powerhouse) and expenditure (Biden) do not collaborate. The stock market is strong, and REIT isn't very bad, but everyone knows that there is bound to be reflections. How about raising interest rates and adding to heaven and then federation default? Many people in the Biden team have already begun to limit benefits, strictly investigating those who are not in agreement with conditions to receive benefits. The problem is that Biden is licking money owners, and the ideology of the young left-left team is paramount. The defense budget and aid to Ukraine are 200B, interest expenses plus 600B, and will soon rise to 1T. Tax increases will result in Trump 2024. Choose your own
高贵的阿德莱德 OP QMengColdJoke : It is possible that the US will actually get away with it this time, so some people are betting that the US will experience a major recession once in 100 years