For those of you highbrows, Wile E. Coyote is a cartoon character who often chases his agile nemesis, the Road Runner. Road Runner is able to stop at the cliff edge but the momentum of the coyote takes him right off the edge, and being a cartoon, he continues running until he realizes that there is nothing supporting him. Whistling fall ending with a distant thump and dust cloud ensues.
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To be honest I’ve heard this metaphor describing previous stock markets. It should be falling but it’s not. As soon as it realizes it should it will. I’m sure same of them did retrench a bit but I don’t think it’s ever been associated with a significant or sustained drop. Sort of like every time someone invokes the Hindenburg Omen
Until the music stops, you have to dance… otherwise, leave the dancefloor, and clip coupons. From 2011, we have heard this valuation is excessive, markets are going to crash, how many remember double-dip recession? taper tantrum, etc…
If you are worried, sell some stocks, take some money.
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Sounds like Road Runner is a great manager while Wile E. Coyote is a typical politician.
The Captain
being lowbrow, loves their cartoons
beep beep
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Should interests go higher? Or should taxes go higher?
The fiscal monetary dance says lower for interest rates because unemployment is going to rise. The fiscal policy will cause a contraction in the economy. Fix the fiscal policy.
Good luck with that.
Beep Beep indeed
PS I am listening more and more to my Irish family telling me the temperature is perfect in Ireland.
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So why aren’t markets freaking out?
I think for a few reasons.
Corporate profits are still expanding. Not massively so but still positive.
Even if the independence of the Fed was not in danger, the market had been expecting a rate decrease. Of course, if the Fed starts to behave irrationally, all bets are off.
Krugman expects an irrational response:
My read of economic and financial history is that market pricing almost never takes into account the possibility of huge, disruptive events, even when the strong possibility of such events should be obvious.
That is because such huge disruptive events are generally rare and when predictable the market has generally already (over)reacted - see the sell off over the punitive tariffs.
Because such events are relatively rare, the only way to account for such is to either sell and get out or buy some form of insurance at a cost. Because such event are rare, taking any action is more likely to be wrong than right. The rational response to stay invested until there is a more clear sign that the alternative is the MORE LIKELY best course of action. A strong “possibility” is ill-defined. We had a strong possibility of a recession for most if not all of last year that never materialized, all while the market grew by 25%.
Here I am in agreement with Krugman:
[The market] is, instead, a “conventional wisdom processor.” That is, it reflects views that seem safe to hold because many other people hold them — and the crowd only abandons those views when they become blatantly unsustainable.
Because this is demonstrably true, it would generally not be wise to bet against the crowd most of the time. In fact, in the few rare cases where someone bet against the wisdom of crowds and ended up being right, books are written and movies are made (I am looking at you Dumb Money and you The Big Short. if such was more common, no one would find such rarity entertaining. It is only their rarity that makes them significant.
Lastly…
First, the subprime crisis of the 2000s. By 2005, at the latest, there were very good reasons to suspect that we were in the midst of a major housing bubble.
This (as well as this site) illustrates a good example. Yes, by 2005 there was data supporting the fact that there was a problem. But, if you had stayed invested until the market started to sell off (something that happened relatively slowly over a 15 month period), you would have made roughly 27% from January 2005 through October 2007. Of course few get out at the all time high but if you waited until the end of the year, you still would have walked away with about a 20% gain.
What alternatives where there in 2005? Not bonds. Interest rates were being increased. Bonds were guaranteed losers at that time.
Not CDs either. a 5 yr CD was less than 2% in 2005.
I posted earlier today about a subprime lender going bankrupt. I am in complete agreement that there are turbulent times ahead - but I am not yet convinced it is happening next week or that it would something so massive that it would wipe out the gains I have already enjoyed so far this year.
Hawkwin
Staying invested, for now, and who wonders how much he can get to option the movie rights to his call to go to cash prior to Liberation Day.
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Yes. Unlike market bottoms, major tops tend to roll over slowly. Hence the 99-day rule about selling when it has been 99 market days since a new high.
DB2
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The conventional wisdom is/was if 10 year is yielding 5%, market will be hurt badly. We had 10 yr 4%+ for the last 3 years, and the last 3 years are some of my best returns in the market. The stunning part of that is, MAG7 had pretty low allocation for me.
There are lot of folks who make well-written illogical arguments. In a way I have to thank erstwhile Berkshire cult/ gang… because of their nonsensical arguments, I realized lot of conventional wisdom like CAPE ratio, GAAP profits vs business performance, etc are just garbage.
There are lots of noise, it is not only important to know what indicators to follow, more importantly what to throw out. If you are REIT investor, interest rate matters as it directly impacts CAP rate and valuation. If you own technology stocks and your company is growing at 30%, 40%, interest rate doesn’t matter to you.
So know your holdings. If you are worried take some money off the table, and reduce your anxiety.
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- Given “EVERYTHING” Market Close Jan 1 2026 5%+ UP?
- SAME more or less (-5% — +5%)
- DOWN (- >5%)
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voters
This is an another cherry picked indicator. The people who are against holding index, use index to back test, and that too imperfect.
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I haven’t seen your post, in an declining interest rate environment, why you think a subprime lender is going to go bankrupt? I am not sure which industry they lend, but, their customers should be able to refinance, credit is going to get less tight.. if they have survived so far…
On the turbulent times…
COVID shutdown 2020
2021 supply chain challenges
2022 inflation cycle
2022-23 fastest fed hiking cycle
2025 “Obliteration Day”
2025 Bombing Iran nuclear site
Market survived the above 6 black swan incidents. US can never withstand 9% inflation… Fed raised interest rates by 5% US economy will crater… 200% tariffs will kill economy… yada, yada…
I don’t know what your “turbulent time” doomsday scenario is, but can it be worse than the above on paper???
So you really don’t know what the markets are going to do. Be comfortable with your allocation.
Because intermediate and long term rates do not necessarily go down in a falling interest rate environment.
Subprime: 501-600. New Car: 13.38%, Used car: 18.9%
Subprime default rates are at an all time high - which is probably a bit more significant than a tiny downward trend in rates.
You understand what the subprime market is like, correct? You think someone can easily go out and refi a subprime car loan and save money - on a depreciating asset?
Strawman.
I never claimed of even came close to implying that we could not “survive.” Where are you even getting such?
I stated turbulence was ahead yet I also stated that I am remaining invested - clearly I am not worried so why respond as if I claimed we were headed for doom?
I never claimed otherwise.
Unreal. Your entire reply to me was one strawman after another.
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Fortunately, nothing in the US is irrational these days.
Tariffs have now become a fact that will be very damaging
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Yes, I understand. The people who take subprime car loans, need their car. The car payment is the last thing they will default, they will even default on rent before car. Also, once they default getting another car is more expensive for them. Separately, many subprime borrowers once establish regular payments, refinance their cars!!!
Used car’s are not that depreciating asset, unlike new cars.
Precisely. My point is market had survived those black swans and doing fine, so mere turbulence is no big deal.
You never articulated what your turbulent means… but dismissed everything is strawman… one can say even the “turbulent times” are strawmen right?
In any case, have a wonderful weekend.
Imagine this, SCOTUS voids tariff because POTUS had no power, will we have a relief to the economy or giving back $1 T going to rock the economy…
If I am a betting man, my money is this administration will scare the wits out of the SCOTUS..
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The consummate professionals roll over.
Lisa Cook is a classy dame.
I hope/ pray no one flags this post…
When you are black and especially black women… you better have a thick skin… nothing is ever given…
We fall
We cry
We take shower
we march
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In 2014, a celebrated poster thundered $AMZN at best is worth $10 because cloud is commodity business and there is no profit to be made. He still continues to spout nonsense elsewhere and continues to receive great reviews. gloom and doom is sexy, it sounds compelling. Broken clocks are not pundits.
One minute you are arguing someone else is irrational. The next minute you are irrational.
You are putting words in other people’s mouths as much as you are quoting them.