The Long Term Investor

One of my favorite traders.....and....I do mean trader. For claiming to be a long term investor in young and innovative companies.....this persons holding time is crazy short and extremely erratic.

Cathie Wood's Flagship Fund's Chart Looks Awful

https://finance.yahoo.com/m/dc6cc3ed-d4eb-35e7-b4c0-ba4b8a1cbf31/cathie-wood-s-flagship-fund-s.html

My comment

As to ARKK

5 days....negative.
1 month....negative.
6 months....negative.
YTD....positive (yea).
1 year....negative.
5 years....negative.

 

Dont blame me when the stock sinks like a rock tomorrow......but....It appears that NVDA hit a bottom on September 21, 2023. At that time is was at $410. Since.....it has moved steadily up to $447.

 

A good day for this little article.

Stay Cool Amid Bond Yields’ Sentiment-Driven Spike

https://www.fisherinvestments.com/e...y-cool-amid-bond-yields-sentimentdriven-spike

(BOLD is my opinion OR what I consider important content)

"On the latest volatility.

Evidently, bonds got tired of being called boring and decided to grab some headlines. Wednesday’s market coverage globally zeroed in on spiking long rates, portraying this week’s surge as a slow-motion global bond market crash gathering pace. Some tied it to yesterday’s House speaker vote, alleging uncertainty over GOP leadership—and what it means when a government shutdown is back on the table next month—rippled globally. Others see a global bond supply glut, while still others see higher long rates as a sign of ever-tightening financial conditions globally, drawing parallels with 1987. In our view, these theories have two big things in common: reading too much into short-term volatility and extrapolating present conditions forward. We think it is a mistake when people do this with stocks’ temporary wiggles, and we think it is an error now with bond yields.

Yes, yields are up. The 10-year US Treasury yield closed at 4.81% Tuesday, jumping 23 basis points (0.23 percentage point) from Friday. It is down a few basis points (bps) today, as we write, but as widely reported, rates are still near a 16-year high. Yet some perspective is also in order, as we have seen some coverage use some funny math to exaggerate the magnitude of yields’ move this year. One article described the past six months as a 50% increase in US borrowing costs, which commits the classic sin of reporting a percent of a percent—a surefire way to artificially inflate a move.

What it actually means is that the 10-year US Treasury yield rose from 3.30% on April 6 to 4.81% on October 3.[ii] That is an increase of 1.51 percentage points. Yes, it is nearly one and a half times that early-April reading, but a six-month increase of 1.51 percentage points isn’t unprecedented—it has just been a while. The most recent instance was in late-1993 and early to mid-1994.[iii] No financial crisis then. There was a crisis in autumn 1987, but yields’ rise then was much higher, surpassing 2.25 percentage points in six months.[iv] Yet yields moved about that much over rolling 6-month periods at various points in 1983 and early to mid-1984 without triggering a financial earthquake. Then too, in all of these instances, yields were rising off a much higher base. As Exhibit 1 shows, yields today are on par with the mid-2000s and well below the vast majority of the 1990s. These were hardly times of crisis or draconian austerity. (They were also quite nice for stocks.)

Exhibit 1: Yields’ Latest Rise in Historical Perspective


Source: FactSet, as of 10/4/2023. 10-year US Treasury Yield (Constant Maturity), 12/31/1961 – 10/3/2023.

That everyone is hyping the 10-year’s 16-year high and UK yields’ 25-year high (and other associated milestones) says more about how low yields have been this century than anything else, in our view. It seems like recency bias at work: People anchor to what just happened, rendering anything outside of that a shock even if it was the norm over the entire history. A measured view of history is usually a good antidote.

Another thing you will see in the chart: Bonds don’t move in straight lines. They wiggle. Their expected short-term volatility may be milder than stocks’, but bonds have their moments—their fair share of sharp moves that don’t last. We think this is the case today, and everything comes into focus—including why sentiment is so bad now—when you remember bond markets (like all similarly liquid assets) are forward-looking.

Today, the main source of fear seems to be that bond yields aren’t behaving as one would expect during periods of easing inflation. All else equal, bond yields reflect inflation expectations over the bond’s maturity, with higher inflation usually bringing higher yields to compensate for the bond principal’s eroded purchasing power. Falling inflation, at least in theory, brings falling yields. For the past half year, however, we have had falling inflation and rising yields. What gives? Simply, we think bonds pre-priced inflation improvement late last year and earlier this year. Markets saw the signs of it in the emerging data, anticipated further improvement, reflected that in prices, and then moved on. The inflation data—and inflation’s leading indicators—were just too widely known for there to be much (if any) positive surprise power left by the springtime. It got pre-priced.

Meanwhile, with economic fundamentals holding up much better than anyone expected, there was little to no reason for recession risk to pull long yields lower. Improving economic conditions also pointed to a deeply inverted yield curve that wanted to steepen, which would either mean falling short rates or rising long rates. Continued Fed hikes precluded the former for the time being, making it likelier than not that long rates would rise somewhat as this year wore on. In our view, this probably explains a lot of long rates’ slow rise since the spring.

But the magnitude of the recent move seems exaggerated by sentiment, in our view. Fundamentals haven’t changed, broadly. Yes, there is a lot of talk about rising bond supply, but this is a well-known factor. Investors have chewed over government bond issuance plans in the US, UK and rest of the developed world for months, and the latest auctions confirm the market is having little trouble absorbing it. The Fed and Bank of England’s balance sheet reduction plans are also well-telegraphed. There are whispers about reduced international demand for US Treasurys due to the dollar’s strength, but the limited data available don’t support this. In July, the latest report available, foreign holdings of US debt hit $7.65 trillion, close to the all-time high set in December 2021 and up over half a trillion dollars since October 2022.[v]

Absent major fundamental supply and demand shifts, there is a lot of talk. US House Speaker talk is one example, with headlines preoccupied over Kevin McCarthy’s ouster and the potential for a protracted replacement contest to interfere with budget negotiations and make a government shutdown likelier. But House gridlock isn’t new, and shutdowns have next to nothing to do with Uncle Sam’s creditworthiness, no matter what credit-raters like Moody’s claim. They also haven’t historically caused bear markets or recessions, as we showed last week. So yields’ jump seems like a classic overreaction.

Across the pond, a handful of UK city councils have issued Section 114 notices—widely reported as bankruptcy notices—spurring fears that the Treasury will have to bail out regional governments. But this is wide of the mark. One, per the House of Commons, “UK local authorities cannot go bankrupt,” and the Section 114 notices are simply formal notices that the council’s income will fall short of the next year’s projected expenses. The typical solution is spending cuts. Occasionally, councils will seek government permission to sell assets to meet the shortfall, or the central government will “intervene in how council services are run,” which generally amounts to cutting services. Outside a handful of small grants to support essential social services, central government funds aren’t involved.[vi] So the image of the UK Treasury borrowing bigtime to bail out city councils and creating a sovereign debt crisis seems far-fetched.

Bond market volatility—like stock market volatility—usually ends as quickly as it begins. The sharp moves can be painful, but staying cool is generally the wisest move, and we think it is wise today. It might be unrealistic to expect yields to get back to their springtime lows, given the fundamental reasons for yields to have drifted higher over the summer, but they don’t seem likely to keep soaring from here—and bonds should keep playing an important role for investors who need lower expected volatility than stocks alone would generate."

MY COMMENT

What is amazing to me is that just about every issue that we see being discussed to infinity today.....seems to be primarily based on a lack of knowledge of real history.....or perhaps....an intentianal ignoring of financial history.

Bonds are a classic example......all the current fear mongering....is being done in the face of historical bonds yields STILL being much higher than the current yields.

Ignorance or ignoring history seems to be the current norm.....with many financial writers and many investors. That does not make their take on what is happening true.

 

My short answer to this question is......NO.

Is the U.S. Stock Market as Bad as it Seems?

https://ofdollarsanddata.com/is-the-us-stock-market-as-bad-as-it-seems/

(BOLD is my opinion OR what I consider important content)

"In the past few weeks the U.S. stock market has erased all of its gains over the past few months. The summer of 2023 came and went and we have nothing to show for it. Inflation and volatility are starting to creep back up and CNN’s Fear & Greed index is seeing red once again.

With all this uncertainty, many investors are wondering: is the U.S. stock market as bad as it seems?

In some ways, it is. With a highly concentrated market rally and lingering inflation, there are legitimate things for retail investors to be worried about. However, history suggests that most of the market pain is already behind us. Let’s dig in.

The Bad

As I discussed earlier this year, at the end of May only seven stocks were responsible for the entire gain in the U.S. stock market in 2023. This lack of breadth was a major concern for me as only a handful of large companies were leading the rally in equities.

Unfortunately, this hasn’t changed much since. Though the market rally did broaden during the summer, recent losses have caused things to reverse course. As of late September, only 25 companies are responsible for the 12% year-to-date gain in U.S. stocks.

You can see this more clearly by looking at the number of stocks responsible for the gain in the Russell 3000 (a broad based U.S. stock index) this year:


Though this year’s rally started quite broadly, it has since become concentrated into relatively few companies. You know the names—Apple, Meta, Nvidia, etc. This level of concentration suggests that there might be more weakness in the market than what the overall gain would suggest.

But, the lack of market breadth isn’t our only problem. We are also dealing with persistent inflation. Though CPI has come down from a high of 9% in June 2022, it’s since increased from 3% to 3.7% over the past two months. This isn’t a good sign.

As Jeremy Grantham explained in a recent episode of The Compound and Friends:

It turns out the market is coincident indicator of comfort. What makes the typical portfolio manager feel comfortable? Number one–it loves low inflation. It hates high inflation. It likes 2% stable inflation.

It does not like to see it bouncing around. It does not like to see it spike, in the worst way. And it does not like to see it hanging around for multiple years. That’s the most important.

I’ve previously discussed why people hate uncertainty in the context of a career, but this idea is equally valid in markets. Most of us just want to know if we’ll be okay and persistent inflation makes it difficult for us to answer that question. It makes it difficult for businesses and consumers alike to plan for the future. So, while prices remain in flux, we should expect more bumps along the road in the future.

Despite the storm clouds on the market’s horizon, the worst month for the stock market is over and history suggests that there are some reasons to be hopeful.

The Good

Albert Einstein once [allegedly] said, “If you want to know the future, look at the past.” Well, based on the past, the worst part of our current decline seems to be behind us.

We can see this clearly if we compare the top 10 worst inflation-adjusted drawdowns in U.S. stock market history against each other. As you can see, our current decline (highlighted in pink below) already seems to be on the road to recovery:


And, when we examine a longer time horizon, we see that U.S. market declines don’t tend to bottom, recover, and then fall further in the future.

No, that’s not how they typically work. In practice, the U.S. stock market tends to fall, reach its bottom, and then recover, as you can see in the chart below:


The two exceptions to this rule occurred in 1937 and 2000 where a secondary decline followed an initial decline years later.


You can see these two declines the chart below (with our current decline added in blue for context):


While it is definitely possible that our current decline could follow a similar path as the 1937 or 2000 declines, I wouldn’t bet on it. Why?

Because, the causes of the secondary declines in 1937 and 2000 were unforeseen events that had little to do with the initial declines.

In 1937, the market initially fell due to monetary and fiscal policy issues but didn’t ultimately bottom until May 1942, at the point of maximum bearishness during WWII. And in the case of the early 2000s decline, the market was nearly recovered from the DotCom Bubble when the Great Financial Crisis hit and sent it even lower. In both cases, the second decline had almost nothing to do with the first decline.

I believe the same thing will be true today. If we were to see a double-dip to a new low in 2023 (or beyond), it won’t be because inflation ticked back up to 5%-6% for a few months. No, it will be because of something we couldn’t predict at all.

While you might see this as bad news, I see it as good news. Why? Because these kinds of black swan events have two redeeming qualities. First, they are rare, which makes them unlikely to occur. And, second, because they are unpredictable, it’s very difficult to prepare for them ahead of time. Therefore, why should we worry about them?

This might seem like a naive question from someone who tells you to “ignore the noise” and “Just Keep Buying” but it’s not. It’s fundamental to the way you invest your money.

After all, if you can’t prepare for something that is unlikely to happen, what’s the point in getting all worked up about it? There is no point. We will just have to cross that bridge when we get there.

If this line of thinking doesn’t console you, then consider that the 4th quarter is historically the strongest for U.S. stocks. If this doesn’t help, then “sin a little” and shift more of your future investments into Treasury bills. If Treasury bills worry you, then buy more farmland or Bitcoin or whatever else helps you sleep at night.

Either way, I can’t provide you with the answer. I can only show you the data and then let you decide for yourself.

And the data suggests that predicting the future is incredibly difficult. So, we should choose an approach that is agnostic to whatever the future holds.

For me, that means the continual purchase of a diverse set of income-producing assets. The assets will change, but the philosophy will not.

So when someone asks, “Is the U.S. stock market as bad as it seems?” I don’t worry about the answer.

Happy investing and thank you for reading."

MY COMMENT

With they way I have arranged my financial life.....I have ZERO concerns at this moment. I have no debt and virtually no exposure to higher interest rates....at least directly.

My stock money is extremely long term.....for life. AND....I do not use that money for living needs.

I wake up each morning and half the time am amazed at what the latest crazy market driving news item or event is for that day. Rarely is it anything that I am concerned about or care about. I sit and watch all the hand wringing and chatter and simply dismiss it all. NONE of this day to day stuff will be of any long term consequence even it it lasts for a year or more.

So like Rhett Butler......"frankley my dear, I dont give a damn". That is my short to medium term market mantra.

 

Now one thing I do think about is......when or if....we undergo a massive societal and cultural change in thinking and risk taking and risk tolerance that overwhelms the market system that we have and eliminates the difference between the short term and the long term.

I am talking about the impact of growing up on screens and on the internet. I am talking about the current seeming IDIOCY of our educational system and many of the social and cultural agendas being pushed.

BUT....since there is nothing I can do about a wide spread change in human culture, ignorance, passivity, and fearfulness.....I will just ignore it for as long as possible. Future generations....that is their problem.

 

Looks like Smokie got a nice down open for his trades.....if he made them early in the day.

Right now the market story is......"THE NASDAQ FIGHTS BACK". At this moment it is now positive for the day. I notice that the DOW and the SP500 are now basically flat. We either improve from here....or....we fade back into the negative.

 

The....foolish....story of the day.

Payrolls soared by 336,000 in September, defying expectations for a hiring slowdown

https://www.cnbc.com/2023/10/06/jobs-report-september-2023.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Nonfarm payrolls increased by 336,000 for the month, better than the Dow Jones consensus estimate for 170,000.
• Average hourly earnings rose 0.2% for the month and 4.2% from a year ago, compared to respective estimates for 0.3% and 4.3%.
• The unemployment rate was 3.8%, compared to the forecast for 3.7%.
• Leisure and hospitality led job growth, followed by government and health care.

Payrolls soared by 336,000 in September, defying expectations for a hiring slowdown

Job growth was stronger than expected in September, a sign that the U.S. economy is hanging tough despite higher interest rates, labor strife and dysfunction in Washington.

Nonfarm payrolls increased by 336,000 for the month, better than the Dow Jones consensus estimate for 170,000 and more than 100,000 higher than the previous month, the Labor Department said Friday in a much-anticipated report. The unemployment rate was 3.8%, compared to the forecast for 3.7%.

Stock market futures turned sharply negative following the report and Treasury yields jumped. Stocks opened lower, with the Dow Jones Industrial Average down close to 150 points in early trading. The 10-year Treasury yield soared 0.11 percentage point to 4.83%, up around its highest levels since the early days of the financial crisis.

The payrolls increase was the best monthly number since January.

“Slowdown? What slowdown? The U.S. labor market continues to exhibit amazing strength, with the number of new jobs created last month nearly twice as large as expected,” said George Mateyo, chief investment officer at Key Private Bank.

Investors have been on edge lately that a resilient economy could force the Federal Reserve to keep interest rates high and perhaps even hike more as inflation remains elevated.

Wage increases, however, were softer than expected, with average hourly earnings up 0.2% for the month and 4.2% from a year ago, compared to respective estimates for 0.3% and 4.3%.

Still, traders in the fed funds futures market increased the odds of a rate increase before the end of the year to about 44%, according to the CME Group’s tracker.

“Clearly it’s moving up expectations that the Fed is not done,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “All else equal, it probably moves the start point for rate cuts, which has been a moving target, to later in 2024.”

Sonders said the bond market is “in the driver’s seat” as far as stocks go, a trend that accelerated earlier in the week after the Labor Department reported a jump in job openings for August.

From a sector perspective, leisure and hospitality led with 96,000 new jobs. Other gainers included government (73,000), health care (41,000) and professional, scientific and technical services (29,000). Motion picture and sound recording jobs fell by 5,000 and are down 45,000 since May amid a labor impasse in Hollywood.

Service-related industries contributed 234,000 to the total job growth, while goods-producing industries added just 29,000. Average hourly earnings in the leisure and hospitality industry were flat on the month, though up 4.7% from a year ago.

The private sector payrolls gain of 263,000 was well ahead of a report earlier this week from ADP, which indicated an increase of just 89,000.

In addition to the powerful September, the previous two months saw substantial upward revisions. August’s gain is now 227,000, up 40,000 from the prior estimate, while July went to 236,000, from 157,000. Combined, the two months were 119,000 higher than previously reported.

The household survey, used to calculate the unemployment rate, was a bit lighter, rising 215,000.

The labor force participation rate, or those working against the total size of the workforce, held steady at 62.8%, still a half percentage point below the pre-Covid pandemic level. The rate for those in the 25-to-54 age group also was unchanged at 83.5%. A more encompassing measure of unemployment that includes discouraged workers and those holding part-time positions for economic reasons edged down to 7%.

The September report comes at a critical time for the markets and economy.

Treasury yields have surged and stocks have slumped amid concern that a still-hot economy could keep Federal Reserve policy tight. The central bank has raised interest rates 5.25 percentage points since March 2022 in an attempt to curb inflation that is still running well ahead of the Fed’s 2% target.

In recent days, multiple policymakers have said they are still concerned about inflation. They largely have cautioned that while another rate hike before the end of the year is an open question, rates are almost certain to stay at an elevated level for “some time.”

Though market pricing puts little chance on the Fed hiking again, the higher-for-longer narrative has been causing angst for investors. Higher interest rates raise the cost of capital and run counter to the easy monetary policy that has underpinned Wall Street strength for much of the past 14 years.

A strong job market is central to the rates equation.

Policymakers feel that a tight labor picture will continue to put upward pressure on wages which then will push prices higher. Fed officials have said they don’t believe wages played a role in the initial inflation surge in 2021-22, but have become more of a factor lately."

MY COMMENT

NO....I dont care much about economic data or especially a single economic report taking on extreme significance.

What we see here is massive hiring by government......of course.....they have done nothing to contribute to the inflation fight. In fact....they continue to do nothing but throw gas on the fire.....and....are never mentioned by their lackeys....the FED.

Assuming that any of the above data is accurate......we are still trying to recover from all the pandemic and idiotic economic shutdown distortions of the labor markets. Many of the big jump in the above data is jobs on the lover end of the scale....lower paying jobs.

I note that wage increases were less than expected.

 

As to a FED hike.....I still doubt it. Regardless of any of this economic stuff.....the Ten Year rate currently sits at 4.825%. We have seen a very big spike up in interest rates lately. In my view this has done the FED's work for them. Why raise rates if they are going up anyway?

Any action by the FED would be extremely foolish.....it is time for them to sit and watch the economy and try to figure out what is actually going on.....in reality....they have no clue what is happening.

 

I like this little article.

The 5% Bond Market Means Pain Is Heading Everyone’s Way

https://finance.yahoo.com/news/5-bond-market-means-pain-040010668.html

(BOLD is my opinion OR what I consider important content)


"(Bloomberg) -- Not so long ago, families, businesses and governments were effectively living in a world of free money.

The US Federal Reserve’s benchmark interest rate was zero, while central banks in Europe and Asia even ran negative rates to stimulate economic growth after the financial crisis and through the pandemic.

Those days now look to be over and everything from housing to mergers and acquisitions are being upended, especially after 30-year US Treasury bond yields this week punched through 5% for the first time since 2007. Yields got another boost on Friday after bigger-than-expected surge in US payrolls that bolster the case for more Fed rate hikes.

“I struggle to see how the recent yield moves don't increase the risk of an accident somewhere in the financial system given the relatively abrupt end over recent quarters of a near decade and a half where the authorities did everything they could to control yields,” said Jim Reid, a strategist at Deutsche Bank AG. “So, risky times.”

The importance of Treasuries helps to explain why the bond-market move matters to the real world. As the basic risk-free rate, all other investments are benchmarked against them, and as the Treasury yield rises, so that ripples out to broader markets, affecting from everything from car loans to overdrafts to public borrowing and the cost of funding a corporate takeover.

And there’s a lot of debt out there: According to the Institute of International Finance, a record $307 trillion was outstanding in the first half of 2023.

There are lots of reasons for the dramatic bond-market shift, but three stand out.

Economies, especially the US, have proved more robust than anticipated. That, along with the previous dollops of easy money, is keeping the fire lit under inflation, forcing central banks to jack up rates higher than once thought and, more recently, stress that they’ll leave them there for a while. As recession fears have ebbed, the idea that policy makers will have to quickly reverse course – the so-called pivot – is fast losing traction.

Finally, governments issued a lot more debt — at low rates — during the pandemic to safeguard their economies. Now they have to refinance that at a much costlier price, sowing concerns about unsustainable fiscal deficits. Political dysfunction and credit rating downgrades have added to the headwinds.

Put all these together and the price of money has to go up. And this new, higher level portends major changes across the financial system and the economies it feeds.

On Friday, 10-year Treasury yields surged more than 15 basis points to 4.89%. The rate in Germany, already near the highest since 2011, jumped 8 basis points to move close to 3% again. The moves were driven by a report in the US showing the economy added 336,000 jobs last month, almost twice as much as forecast.

Housing Market Pain

For many consumers, mortgages are the first place that dramatic moves in interest rates really make their presence felt. The UK has been a prime example this year. Many who took advantage of pandemic-era stimulus to take out a cheap deal are now having to refinance, and are facing a shocking jump in their monthly payments.

As a result, transactions are falling and house prices are under pressure. Lenders are also seeing a rise in defaults, with one measure in a Bank of England survey rising in the second quarter to the highest level since the global financial crisis.

The mortgage-cost squeeze is a story playing out everywhere. In the US, the 30-year fixed rate has surpassed 7.5%, compared with about 3% in 2021. That more-than-doubling in rates means that, for a $500,000 mortgage, monthly payments are roughly $1,400 extra.

Government Pressure

Higher rates mean countries have to shell out more to borrow. In some cases, a lot more. In the 11 months through August, the interest bill on US government debt totaled $808 billion, up about $130 billion from the previous year.

That bill will keep going up the longer rates stay elevated. In turn, the government may have to borrow even more, or choose to spend less money elsewhere.

Treasury Secretary Janet Yellen this week said yields are something that’s been on her mind. Adding to the market tensions, the US has been in the throes of yet another political crisis over spending, threatening a government shutdown.

Others are also trying to deal with bloated deficits, partly the result of pandemic stimulus. The UK is looking to limit spending, and some German politicians want to reinstate a ceiling on borrowing known as the debt brake.

Ultimately, as governments try to be more fiscally responsible, or at least give that impression, the burden falls on households. They’re likely to face higher taxes than otherwise along with suffering financially strained public services.

Stock Market Risk

US Treasuries are considered one of the safest investments on the planet, and in the last decade or so the rewards for holding them were modest given suppressed yields. As they now approach the 5% mark, these bonds are looking much more attractive than risker assets, such as stocks.

One metric under close scrutiny is the equity risk premium, the difference between the earnings yield of the S&P 500 index and the 10-year Treasury yield, which is a way of gauging the attractiveness of stocks versus other assets. That stands near zero, the lowest in more than two decades, implying that stock investors aren’t being rewarded for taking on any additional risk.

Ian Lyngen, head of interest-rate strategy at BMO Capital Markets, cautioned on Bloomberg Television this week that if the 10-year hit 5%, that could prove an “inflection point” that triggers a broader selloff in risk assets such as stocks. “That’s the biggest wildcard.”

Companies Squeezed

Companies spent the last decade raising cash at really cheap rates, basing their business models on the assumption that they’d have access to markets if they needed more money. That’s all changed, but most firms raised so much when rates were near zero that they didn’t need to tap markets when the hiking cycle began.

The problem now is “higher for longer.” Weaker companies that had been relying on their cash cushions to make it through this period of higher funding costs may be forced to tap markets to deal with a wall of debt that’s coming due. And if they do, they’ll need to pay almost double their current debt costs for cash.

Such strains could mean corporates have to scale back investment plans or even look for savings, which may translate to job losses. Such actions, if widespread, would have implications for consumer spending, housing and economic growth.

The changed world will also be a test for some of the newer corners of funding, such as private credit, which has yet to show how it would handle corporate defaults.

Deals Drought

Higher rates have negatively impacted banks' willingness to back large mergers and acquisitions over the last 18 months, with lenders fearful of being left with debt on their books that they can't sell on to investors.

This has led to a steep fall in leveraged buyouts, a lifeblood of healthy M&A markets. Global transaction values stood at $1.9 trillion at the end of September, Bloomberg-compiled data show, leaving dealmakers on course for their worst year in a decade.

Private equity firms have been particularly affected, with the value of their acquisitions falling 45% this year to about $384 billion, the second consecutive year of double-digit percentage declines.

In the absence of cheap debt to help boost returns, some firms, including giants like KKR & Co., have been writing bigger equity checks to get deals done, while others have been opting for minority stake purchases. At the same time, PE firms have found it harder to sell assets, leading to delays in returning money to investors and impacting their ability to raise new funds.

Office Debt Timebomb

Commercial real estate is a sector heavily reliant on borrowing vast sums, so the jump in debt costs is poison for the sector. Higher bond yields have slammed valuations on properties as buyers demand returns that offer a premium over the risk free rate.

That’s bumped up loan-to-value ratios and increased the risk of breaching debt terms. Borrowers face the choice of injecting more equity, if they have it, or borrowing more at costlier rates.

The other option is to sell properties into a falling market, creating more downward pressure on prices and in turn causing more trouble for finances.

Compounding all of this is the structural shift that's hitting offices, as changing work habits and rising environmental regulations combine to make swathes of real estate's biggest sub-sector obsolete, echoing the downturn that's already pummeled malls.

While a broader turmoil could emerge from anywhere, it’s worth noting that property crises have frequently been the germ for a wider banking crisis.

Pensions Hit

Lately, both bonds and stocks have been going down. That’s not ideal for defined-benefit pension funds that tend to use the classic 60/40 strategy, of 60% equities and 40% bonds.

But once Treasuries trough, the new, higher rates that they offer could prove an attraction to many current retirees. A gauge of inflation-adjusted yields this week surpassed 2.40%, which is a whole lot better than the negative 1% seen as recently as last year. Amid a cost-of-living crisis, positive real return would be welcomed by many.

If higher yields are good because they improve funding positions, steep rises can throw up unexpected problems. That was the case in the UK last year, when a shock government budget announcement brought mayhem to the gilt market, hitting pension schemes using so-called liability driven investments. Those trades typically use leverage to help funds match assets with liabilities and got slammed by margin calls after a bond selloff.

Other pension funds have also been caught out by higher rates. Sweden’s Alecta was hit by a local real-estate slump because of its investment in heavily indebted landlord Heimstaden Bostad. It also lost lost 20 billion kronor ($1.8 billion) on failed bets in US lenders, including Silicon Valley Bank.

Central Banks Aren't Wavering

Amid the market ructions, central bankers aren’t showing signs that they are wavering and ready to rush in to save the day.

That’s because Fed Chair Jerome Powell and his counterparts around the world have been focused on trying to slow their economies to a sustainable speed in order to get sky-high inflation down. There’s a risk that the slowdown becomes too pronounced, but for now, central bankers seem set in their position.

“Investors have tried to price this Fed pivot so many times,” said Johanna Kyrklund, co-head of investment at Schroder Investment Management. “The Fed has actually been very consistent in saying they are in no rush to cut rates, so maybe we should just listen to what they are saying.”

She likens the bond selloff to the bursting of the dot-com bubble two decades ago, when some “fundamental assumptions had to be revisited.”

“The same has happened with the bond market,” Kyrklund said. “New ranges are required and the last two years have been about bond investors getting used to that fact and accepting that we’re not going back to what was true the last 10 years.”"

MY COMMENT

Some good discussion above. But....does it change my long term investing thesis....no. In fact it makes me glad that I am a long term investor in BIG CAP....market leading companies.

Am I going to abandon stocks and funds to get a 5% return....nope. Why would I do this when I can average about 10-11% long term in stocks and funds? I am certainly not going to become a market timer.....locking in current interest rates at the expense of my stock holdings.....and...than having to hold those interest paying instruments till maturity or sell them early.....as I attempt to time the markets. of course....we know that market timing NEVER works.

 

AND.....for all those that were cowering in FEAR this morning and expecting the markets to fall into the garbage can.......well....ALL the big averages are now in the green.

Today is a perfect micro-example.....that....you can not anticipate what is going to happen short term. It is a waste of time to even try.

 

On the positive side of things......yes...still no sign of the recession that all the experts were predicting. A good thing.

 

Take heart.....enjoy the day and the markets today....have fun......the long term tells me that all will be just fine. Dont let the short term media push your thinking to.......daily obsession.

TRUST THE FORCE.........( the power of long term investing)

 

SO....here we are....two hours into the market day...and we are suddenly in the middle of an epic bounce-back rally.

Only four and a half hours to go......I will not even try to guess what is going to happen over that time.

 

Having just looked....I have a nice medium level gain today in my primary account. EVERY stock is up except for COST.

Costco is down about 3.25% today. I cant find much of a reason except for perhaps the comps that were released a day or two ago. I also se some comments that thee hot jobs report fanning fears of recession is the cause......(see WSJ).

BUT....in reality the comp numbers seem ok to me.....but.....what do I know. AND....recession is only going to help COSTCO.....people will flock to their stores if they are concerned about their pocketbook.

I dont see any significant reason for the drop in COST today....so....I am calling BS on this one day move of over 3%.

 

So basically we see the BOOMING markets today giving.....the middle finger....to the FED, the jobs report, government, and fear mongering media.

I LOVE IT....even if it does not hold till the close.

 

Today is a good day for this little article....you never know when those nice market bumps are going to happen.

The Long Game: Why Patience and Perspective Matter in Investing

https://blog.validea.com/the-long-game-why-patience-and-perspective-matter-in-investing/

(BOLD is my opinion OR what I consider important content)

"Patience can be defined as the capacity to accept or tolerate delay, trouble, or suffering without getting angry or upset. It’s the ability to endure difficult circumstances, persevere in the face of adversity, or wait calmly for the achievement of a goal.

Patience pays off when investing.

Patience is also hard.

Variability of Returns

Let’s use the S&P 500 and Russell 2000 indices as examples. It’s been two years since investors in the S&P 500 have seen positive gains. It’s been even more frustrating with small caps, with the Russell being at or close to the same level it was trading at back in November 2020. So, depending on what you’re invested in, you may be looking at 2 to 3 years of dead money.

It’s tempting to toss in the towel and lock in the 5% that short-term treasuries are paying, and that could be a good or bad decision, but for long-term money earmarked toward growth I’d argue that type of decision has the ability to detract from returns more than enhance them.

When we are in periods like this, it’s important for investors to take a longer-term view and not let recency bias and short-termism impact their decisions.

The table below shows the rolling returns for the S&P 500 going back to 1994. On average, the S&P has produced a 10.3% annual return over rolling three-year periods, a 9.2% return over rolling five-year periods, and an 8.2% return over rolling seven-year periods. But these are averages, and investors can sometimes get lucky and invest when the returns are much higher (i.e., the High column) or much lower (i.e., the Low column). Take the worst-case ten-year period in which an investor who bought the S&P 500 may have had to endure a decade of losing money.

Roll Period Average (Median) Best Worst
1 year 10.62% 160.57% -467.84%
3 years 9.89% 42.43% -42.65%
5 years 9.72% 35.15% -17.97%
7 years 9.02% 25.75% -7.76%
10 years 8.57% 21.28% -5.38%
15 years 8.32% 19.24% -0.72%
20 years 7.95% 17.90% 1.60%

Source: The Lazy Portfolio ETF | SPDR S&P 500 (SPY): Rolling Returns

This chart below presents this concept visually as well. This shows the five-year rolling returns of the S&P. As you may suspect, in the 1930s, early 1980s and during the 2000s, the rolling returns were below average and even negative, but after the market bottomed in these periods the rolling returns improved significantly.

5 Years Annualized Rolling Returns over time



Source: The Lazy Portfolio ETF | SPDR S&P 500 (SPY): Rolling Returns

“Forget About It”

Based on my experience in working with many different types of investors at different life stages, I can tell you a few things.

Most can’t (or won’t) be able to handle three years of poor returns and if you expand it to five years, forget about it! But there are some ways to better try and position a portfolio and investments for these poor performing periods: some of it is tactical, some of it is mental and some of it is historical.

Diversify Smartly: Shield your investments by spreading them across multiple assets and markets. Think beyond just stocks (or U.S. stocks) – incorporate bonds, international equities, alternatives and more to safeguard your portfolio against market volatility and long periods of lackluster returns that may shake you out of solid assets. We recently tackled the importance of diversification on this podcast episode.

Enduring Active Strategies: Understand that with strategies like value investing or other active investment strategies like factor investing approaches, deviations from benchmark returns are expected. Be prepared for these variances and ensure they align with your investment goals.

Understand History & Market Returns: Some of the very best returns come after periods of declines. This is one the areas where patience really pays off. If you invest in the market or investment strategies and you see losses on your investments, the key is not getting shaken out. By the time the losses are material, that likely means the worst of the downturn it is probably already behind you. In a recent discussion with value investor Steve Romick we had on our Excess Returns podcast, he explains how he approached investing during the COVID crash and what he has learned in investing over time.

Take the Long-Term View: Markets will fluctuate; it’s their nature. By keeping a long-term perspective, you can see beyond temporary downturns and focus on the broader horizon of growth opportunities and letting your money and wealth compound over time.

As Warren Buffett once said, “The stock market is a device to transfer money from the ‘impatient’ to the ‘patient’.”

I couldn’t agree more."

MY COMMENT

Today is the perfect example of how the common knowledge can simply be wrong.

You can NEVER anticipate what the markets are going to do short term. To capture......at the minimum.....the average gains and all the big explosive days....you have to be invested.

Trying to invest according to the media expectations and content is simply a fools errand. They have no more ability to predict the markets than anyone. In fact...probably less. they are in the business of selling content....got investing or doing investing advice.

You do have to be PATIENT and BOLD. BOLD....being....willing to stay in the markets and simply wait for the long term to happen. You will be glad you did.

 

The beautiful close today.

Dow gains nearly 300 points after jobs report surprise

https://finance.yahoo.com/news/dow-...rprise-stock-market-news-today-160647027.html

(BOLD is my opinion OR what I consider important content)

"October's first trading week ended with a twist after Wall Street reversed earlier losses on Friday and surged to the closing bell as investors digested a strong jobs report that blew away expectations.

The S&P 500 (^GSPC) gained about 1.2%, while the Dow Jones Industrial Average (^DJI) climbed roughly 0.9% or about 290 points. The tech-heavy Nasdaq Composite (^IXIC) rose 1.6%.

The September jobs data did not show the signs of cooling in the labor market that were forecast. The US economy added 336,000 jobs in September, almost twice the number expected. That could give the Fed more evidence that the labor market remains strong, making the case for a more restrictive policy for longer.

Friday's data is the last key payrolls report before the central bank's next policy meeting.

The Fed is also watching the bond markets, as Fed official Mary Daly said Thursday that if long-term bond yields remain around current levels, then policymakers may not need to raise interest rates again. The rally in yields continued Friday after the jobs print, with 10-year US Treasury yields (^TNX) going back up past 4.8%.

The bond sell-off may well continue, given there's no clear catalyst to stem the bleeding, according to some analysts. It would take a washout in stocks or softening in the economy to prompt a retreat in yields, they believe.

Worries about growth have weighed on oil prices, which are set for their biggest weekly loss since March thanks to a clouded demand outlook. WTI crude oil futures (CL=F) wavered around $83 a barrel on Friday, while Brent crude futures (BZ=F) kept hold of the key $84 level."

MY COMMENT

A stunning turn around today in the markets. Cementing gains for the week.

 

A nice fat gain for me today....on a day that seemed hopeless in the early going. Seven of eight stocks up for me. the lone loser...COST. I also got a beat on the SP500 by 0.16% today.