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On 9/27/2022 at 5:10 PM, Wade1865 said:

TOTAL. Worse. Down, from -1% to -9%. Don't worry guys, everything's fine.

TOTAL. Lower, from -9% to -14%. Although some gains were seen across all positions, liquidating XOM -- where all profits were contained -- increased total current losses to a significant degree, which I found amusing! Otherwise, the general market seems to have improved slightly in the past few days; however, this is unlikely to hold. I'd assume everyone at all socioeconomic classes are (or should) be preparing for an awful 2023. I can't explain why, but riding the edge of this razor blade is such a beutiful thing to experience!

T. Higher; -17% to -16%.

XOM. Higher; +47% to +70%. After holding for 16 months, qualified profits realized at approximately +70%. Gains over the past few days were too good to let go (a second time) for another round of volatility. Although I wouldn't be surprised a third round would see gains at 80% or higher given the war in Ukraine and the global energy crisis (to be compounded further by planned OPEC+ maneuvers at the expense of Uncle Joe), I want to use the substantial profits for those positions that have suffered most, for greater future profit.

KHC. Higher; -9% to -6%.

WBD. Higher; -61% to -58%.

***

In my thoughts now are two European firms, Credit Suisse Group AG (CS) and Deutsche Bank Aktiengesellschaft (DB). Seems they've sustained significant scandals in the recent past, with consequent decimation of their stock prices. Although both provide fair dividends, it's the price that is appealing to me at the moment, reminding me of Bank of America Corporation (BAC) following the Subprime Mortgage Crisis, circa 2011. Too big to fail -- all three, maybe?

Looks delicioso, exquisito, suculento.

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Markets look a bit precarious with oil about to take off again (potentially fuelling inflation) and the Fed still looking to be hawkish after US unemployment fell to 3.5%.

Still, I'm beginning to nibble away a bit with my pile of cash. Certainly not going all in, and I've liquidated a few precarious holdings (which satisfied my 15% stop loss rule, taking profits). But some of the big dividend-paying blue chips will make it through the financial storm and possibly in a stronger position (the weaker players having been taken out of the game) so if their valuation looks good, I'm taking an interest. The level of cash in my "investing money" is still pretty elevated (about 25%) but I think I've done the bulk of my selling (unless stop-losses trigger more) and cautiously adding a few stocks to my buying watchlist.

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Yeah in theory this is an attractive time to get in. Plenty of very beaten up names out there, energy sector aside. 

But the downside still looks considerable. Some of the speculative puff from the COVID years has come out, but a significant central bank induced recession is not priced in. Nor are further geopolitical setbacks, which could cause headline inflation to skyrocket again.

And there’s always the chance of a financial crisis, though most of the risk is (hopefully) sitting outside the banking system this time (and in any case banks are shielded somewhat by the post-crisis buffers).

Edited by Paxter
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Having said the above...financial stability will be getting a test in the coming days. Bailey has said the BoE will end its emergency gilt buying in three days (unsure why that deadline was given - hopefully he knows that the pension funds have raised enough cash now to meet their margin calls). Either that or Bailey is playing chicken with Truss. 

I think the overall indirect contagion risk here is fairly low internationally...unless of course other countries have also turned their pension funds into mini-banks that are leveraged and vulnerable to market/interest rate risk. As for direct contagion risk, that depends on whether any global financial institutions have material exposures to the players (both banks and non-banks) in the UK charade. 

Edited by Paxter
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I'm assuming Bailey's three-day exit is a moral hazard thing. When they first did it, they said it would be for two weeks and he's sticking to it. If they keep extending it, then it does become a case of moral hazard (or more than it already is, I guess!).

So yes, financial stability concerns are coming into the overall picture now. Plus a China COVID resurgence, etc. So a tricky time for investing, but I'm still ready for a nibble here or there if something comes up in the sweet spot. I'm okay if I'm not investing right at the bottom, I'll still have some cash ready to deploy if things really drop more.

EDIT: Re the BoE's intervention, they probably shouldn't have put a specific end date on it, but now that they have I think they're bound to it. I bet there are lots of speculators that are ready to pounce.

Edited by Jeor
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1 hour ago, Paxter said:

Pretty funny (and very typical of modern finance) that basically the most boring type of financial vehicle (the pension fund) has become an over-leveraged source of systemic risk.

That was the situation in Canada for many years. Public service plans were a cash cow for governments to use as cheap sources of funds as the plans were only allowed to invest in government bonds. The best thing to ever happen was for the unions, healthcare in particular, to gain an equal say in how the plans were run. 

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A Nobel Prize for the Economics of Panic - Paul Krugman (who also has received a Nobel for Economics)

https://www.nytimes.com/2022/10/11/opinion/nobel-economics-bernanke-diamond-dybvig.html

Quote

....  Obviously, Bernanke, Diamond and Dybvig weren’t the first economists to notice that bank runs happen. But Diamond and Dybvig provided the first really clear analysis of why they happen — and why, destructive as they are, they can represent rational behavior on the part of bank depositors. Their analysis was also full of implications for financial policy. At the same time, Bernanke provided evidence on why bank runs matter and, although he avoided saying so directly, why Milton Friedman was wrong about the causes of the Great Depression. ....

 

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Jamie Dimon (CEO, JPM) -- said it first, and recently confirmed we may see another (and more painful) 20% or so decline in the S&P 500, and I tend to trust his judgement on this; though, neither of us knows for sure. We're in the eye of the hurricane now, bracing for the second act. Then, we'll experience the rest of the recession, which will occur over years, as much as a decade.

As I said, this will be the last general wealth-building event I'll actively exploit, which will be followed by a generation of prosperity. Key consideration (Ray Dalio; Founder, Bridgewater Associates): credit.

***

DJIA. JAN 2021, 35,100; OCT 2022, 29,300; down -17%.

NASDAQ. AUG 2021, 15,500; OCT 2022, 10,500; down -32%.

S&P 500. SEP 2021, 4,550; OCT 2022, 3550; down -22%.

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Hard to really argue with Dimon on the further 20% from here. Inflation in the US is running incredibly hot, with Core CPI (a stickier view of inflation) now rising to 6.6% (new print out today - highest number we have seen so far this year). That implies a negative real interest rate, even after the 300bps of tightening we have seen so far this year. 

Many think we need to see positive real interest rates before demand will really start to taper off and take the heat off prices. Others think that we have done enough tightening and should pause for about 6 months to view the lagged effects of rate hikes. I think most central bankers are in the former camp. 

 

Edited by Paxter
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On 9/14/2022 at 3:59 PM, Wade1865 said:

UPDATE -- inflation showing several months of steady but minimal decreases, though it's less than what was expected given the major Fed rate increases (five times since March!). Unfortunately, as Paxter mentioned, core inflation (i.e., excluding food and energy) has increased.

¯\_(ツ)_/¯

2022

SEP 8.2 [current]

AUG 8.3

JUL 8.5

JUN 9.1 [peak]

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Big market rally despite the higher-than-expected inflation news, but we've seen this story before. In previous months there have been big rallies off seeming bad news (e.g. Fed tightening or a bigger inflation print) but the market has given back its gains in the next few days. Hard to see how this one holds up, with core inflation still on the rise, but I guess people are taking heart from the fact that the general gauge seems to have peaked.

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3 hours ago, Jeor said:

Big market rally despite the higher-than-expected inflation news, but we've seen this story before. In previous months there have been big rallies off seeming bad news (e.g. Fed tightening or a bigger inflation print) but the market has given back its gains in the next few days. Hard to see how this one holds up, with core inflation still on the rise, but I guess people are taking heart from the fact that the general gauge seems to have peaked.

I think this rip is just due to some pricing support around 3,500 on the S&P. The inflation number was a confirmation of the status quo so not able to move the market meaningfully.

The "Dimon Drop" will require more information on the breadth and length of the expected downturn and its effects on earnings and/or financial markets. We probably won't have that knowledge this year. 

ETA: Forgot to add that lots of traders are expecting the market to bounce when the GOP win the House in Nov and Congress is gridlocked for two years. Markets love that. So this is a nice buying opportunity if you are expecting that Fall bounce. 

Edited by Paxter
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It remains to be seen how complete the U-turn is. Jeremy Hunt is a moderate, so that helps, but Kwarteng has done a lot of damage in such a short time and confidence in UK fiscal policy isn't going to bounce back that quickly.

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1 hour ago, Jeor said:

It remains to be seen how complete the U-turn is. Jeremy Hunt is a moderate, so that helps, but Kwarteng has done a lot of damage in such a short time and confidence in UK fiscal policy isn't going to bounce back that quickly.

You're not wrong. Yields on gilts actually went up again today quite sharply after the Truss announcement, which is not what Bailey was looking for! We will have to see whether bond-buying starts again on Monday.

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As much as Kwarteng had to go because of bad policy and the market not trusting him, the fact that Truss is still there is hardly reassuring. Kind of ironic that the tax-cutting trickle-down evangelist is finding that free markets, big business and investors are a double-edged sword.

One gets the feeling that Rishi Sunak is really the only Tory who could calm the bond markets down from here. Whether it's by changing the leadership rules, or convincing Truss they have the numbers to do so and getting her to resign of her own accord, the Conservatives have to get him in if they want any chance of salvaging anything other than complete annihilation at the next election.

 

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