| | | OK, thank you for the kind compliments, I'll let 'er rip then... here's what I was going to post yesterday just after market close:
I'll give my overall stock market impressions here since reading the tea leaves about market and economy forces seems to be my strength, as they apply to the U.S. securities markets and the world economy overall at a macro level –– not trying to time the market directions precisely or pick individual stocks or trade them over short periods. I leave that to the experts in this thread and elsewhere on SI who've been doing that for decades, many to great financial success.
I fly a small drone myself for fun and as a hobby, and I'll use it here to make an analogy to the world's securities markets and economy, especially those in the U.S. as I seem them.
I call it the "Drone Market View" because from a drone's perspective high above a forest, it can see the big picture of the world around and below it, a view impossible when down within the forest among all the life (and destruction) there. Being above the fine details of the forest floor (the current stock market and volatility in it) it's far easier to understand what is really going on in that drone's view.
As has been discussed in this thread many times by Trader J and others, removing personal emotion from investing decisions as much as possible gives one a big advantage. That is what I constantly strive to do.
Best current estimates of the volume of the U.S. stock market that algorithms currently control range from 60-73%, but they've varied widely over the years because they're hard to measure and there's no U.S. regulation around their use or reporting of them. Since algorithms are computer code and have no emotion at all, you could say they start with a very large advantage over humans for that reason alone. But they also control vast amounts of wealth and are used to time the market every second of every trading day, down to fractions of a cent, to eke out profits. Michael Lewis' book, Flash Boys illustrates it very well. The High-Frequency Trading (HFT) these algos do no human or group of humans could do so quickly themselves, it's simply not possible.
I believe we are in a bear market overall right now and will continue to be into next spring. It's already baked in due to the Fed. Yes, the DJIA is currently fighting around that technical designation (20% down from it's all-time high). It's just been a slow grinder downward and atypical of anything we've seen in the U.S. stock market before due to all positive factors underpinning the economy currently –– mainly the high employment rates we still enjoy in the U.S. right now.
Monday (10/3/2022) was yet another relief rally within that bear, and a very good one. Anytime a market index rises ~2.5% in single day that's a positive for those on the bullish side of those trades. Mostly controlled by the algos again, but oh well.
That rally could even last through this month, until the midterm elections in November. That has happened before too. In fact, if at least one of the houses of Congress gets locked up and goes to the Republican side in the upcoming election, that's statistically proven to be better for the economy since business killing regulation can't get passed, and neither can the large spending bills the Democrats get blamed for either.
This phenomenon has happened time and time again, for over a century now in the U.S. Same thing happens in reverse too when Republicans hold the executive branch for two years. This last one (with Trump) was complicated greatly by the pandemic and lockdowns resulting from it, but, if you pull back out again (the drone's view) and look at a 30-year chart, that quick decline/recovery in March of 2020 looks like just a flash crash, does it not?
Well, the old adage "Don't fight the Fed" overrules all of that. The political scene doesn't really matter in the short term (<1 year) due to the Fed and its actions to tame inflation. Raising interest rates as an economic tool is more like a sledgehammer than a tack hammer, a fact I think most reading this believe. The effects of the rate hikes already put in place will ripple into into at least spring of 2023, in my opinion, and that's not really a new thought. If the Fed continues to tighten since they're meeting once a month now and some rumors are they will, that would only make it even worse as housing prices will continue to fall due to a lack of buyers who can qualify to purchase homes. It could extend the decline further into 2023, deepen the current recession, and make the recovery take longer as well.
The Fed has so much power to affect the U.S. (and world) economy it's pretty amazing, and also scary to many. But understanding it and how it all fits together is the key for profiting from the trends.
This boom/bust business cycle as it relates to government regulations, policies, and war/debt spending has repeated itself since at least 1910, before World War I in 1918 and the Great Depression started with the market crash in October 1929. What got us out of it? Going to war in World War II and the huge economic engine it created to win that war. The returning victorious soldiers started families and enjoyed the fruits of their hard fought victory and all the economic prosperity it provided, thus creating the Baby Boom Generation of consumers who grew up to keep that economic boom going.
The other wars/policing actions we've had do similar things as well.
Could I be wrong about all this? Certainly. Am I? It remains to be seen, but I don't think so or I wouldn't have posted this.
Yes, the facts are different surrounding all those cycles and the reasons for them, but results are always predictable and the same as the Fed and monetary policies.
From the the drone's viewpoint, anyway.
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Note: What I hadn't done here is tie in the housing markets and why interest rate hikes are so damaging to them, creating one way it eventually it drives unemployment rates up (builders quit building and lay off construction workers and demand for the raw materials used in the construction fall, increasing inventories that have to be discounted to sell. That in turn drives revenues for retailers lower, laying off more workers they can't afford to keep, and so on....
Maybe this is all Econ 101 for Capitalist economies, I don't remember it all from my college course in it. Doren was a big help to me in understand these things as they relate to our wars, so I need to give him thanks here. Thanks too for the posters of this thread, especially Trader J and others on SI over the years.
That's my TEDTalk, thank you for coming. :-) |
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