Chicken
Posted on Sunday, May 7th, 2023
When we helped my daughter pick out her first apartment my utmost concern was for her safety. As a dad I noticed the big law firms in town were right down the street from her apartment and a While Foods was next door. It seemed to me that if there was a safe space in the city it was there. The shooting in Atlanta this week took place within a block of her apartment! It is hard to model for randomness. Everyone is fine. She was at work. You have kids and they instantly become the thing that makes life make sense. They are the aspect of life that gives it meaning so you try to keep them safe. Life happens and you realize that the only way to keep them truly safe was to never have had them in the first place. Odd juxtaposition there.
If you just saw Friday’s market numbers, you think that the market had a great week. A handful of stocks did but the broader averages were mostly lower. It is still a grind. The range is still intact. If you had told me last May that we would see the 2nd, 3rd and 4th largest bank failures in our history and that the market would be practically unchanged I would not have believed you. But here we are – still stuck in our range. We are glad to have moved our funds into money market funds getting 4.5% months ago while we wait out the market all with no risk. It was a good call but what is next? The curse of the money manager. You are only as good as your last trade so back to work.
We still have a banking crisis on our hands. The problem is that banks are giving us 0% interest on our money. Investors have woken up to the fact that they can transfer those funds elsewhere and get 4.5%. Money goes to where it is treated best, and banks aren’t treating it well at all. The reason is that their earnings depend on it. They have a choice – give depositors higher interest rates and hurt the bank’s earnings or not give the interest and watch the money flee their vaults and go out of business. On Friday night after the market closed data was released where we can see that the flight to better surroundings is still happening and will keep happening, forcing the closure of more banks. Every time they close a bank, a new bank will become the next most vulnerable and chosen target.
The banking crisis is not over. There is one very large bank that we are worried about. I don’t like to say which one because the problem with banking is that it is a confidence game, and it is irresponsible to start pointing fingers. Just know that the problem is not over and can get worse. Investors have been conditioned that the Fed will step in and solve any crisis with liquidity. All are expecting the Fed to step in and add liquidity as this banking crisis lingers. The Fed is trapped by inflation and its options are limited. If the Fed is going to step in – why sell? As far as the Fed is concerned – if the market doesn’t sell off, they why step in? It’s like a game of chicken. This market may not trough until investors give in and sell.
I expect the market to break out of its 3800-4200 range to the downside. 4000 is the key and the heaviest strike price. A break below 4000 could get things moving quickly. However, better yet would be a move above 4200 first where the market sucks people back in. The market likes to make a fool out of the most people possible.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.