Real Deal
Posted on Monday, May 30th, 2022
That was a very busy week. Graduation took place on Tuesday night as our son graduated with high honors. We are so proud. It was a week filled with parties which culminated on Saturday with most of my family in town for the big event. I arrived back at the house with the food for all and made my rounds as host to see who needed drinks. (I’m not that thoughtful. It was Diane that asked me to do that.) As I finished my rounds I noticed that my dad was having a coughing fit. I got him a glass of water. He abruptly snatched it out of my hand. Hmm, I thought – that was little out of character. He finished the water and I gave him more. He pushed it away. This is when I started to realize there was a problem. My sister in law said he couldn’t breathe and I should give him the Heimlich. I asked my dad and he nodded yes. It’s amazing how many thoughts you can have in fractions of a second. First of all, I never thought it was going to work. I also thought that he was going to tell me “Never mind. I’m fine”. I gave him the Heimlich twice but no response. I realized that this was the real deal. Two more and he was breathing again. That was a relief. My kids joked afterward that I am one for one. My first life saved! I guess I can check that off my list.
The bulls saved the market this week as the S&P 500 finished higher by 6.6%!! Was that it? Was that the bottom? We don’t think so. Bear markets usually have wild rallies that suck investors back in. Don’t get me wrong. There are positives this week. First of all, hedge funds have really taken down risk and, secondly, corporate insiders are buying large amounts of stock. That’s good news. Anecdotally, we also heard of more layoffs this week. If the jobs market cools off that will accomplish most of what the Fed is trying to do.
Here’s the deal. The Federal Reserve needs to cool off inflation. They basically only have one tool. That is to tighten policy so the economy cools. Not very efficient but getting the stock market down helps them accomplish their goals. So, the higher the stock market goes the more the Fed has room to raise rates. If the stock market falls it then takes pressure off the Fed and they are more likely to stop. Hence, a bear market rally only encourages the Fed to step on the brake. Not good for stock prices. Here’s the rub. Just the make the situation more complex – It’s getting political now. President Biden is looking at a falling job market and a falling stock market. That is not good for the Democrats as the midterm elections approach. Biden is going to meet with Powell in the Oval Office on Tuesday. You have to figure he is going to tell him to let the market up. Not sure what Powell’s response will be. Biden is stuck between a rock and hard place. Do nothing and inflation ravages the lower and middle class. Do something and the stock market falls and unemployment rises. We have told you for years that easy money policy is a drug that politicians may never want to see end.
The end of this bear market will come when we see more layoffs so watch the job market. Hedge funds deleveraging means that a capitulation selloff may not come so we must be prepared for that as well.
Remember last week when we told you:
“I’m ready to buy. I just hope the market makes it obvious.”
It’s doesn’t look like it’s going to be obvious – at least not yet.
June 17th is still a big date on the calendar. Bear markets go further and faster than you think. Middle of the range is 4300 on the S&P 500. We closed Friday at 4158.
Thanks to all who serve and have served but most of all to those who made the ultimate sacrifice to defend our freedom.
“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.