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A Fresh Look At The Markets 🔍
Did you know that during the Great Depression, the market's drastic downturn led to significant financial reforms?
Equity Eats
February 20, 2024
A Fresh Look At The Markets 🔍
Did you know that during the Great Depression, the market's drastic downturn led to significant financial reforms?
This underscores the market's resilience and capacity for renewal, mirroring the insights we share in this edition.
In this newsletter, we’ll offer a seasoned perspective on the stock market and the global economy, debunking myths and shedding light on truths.
Another Inflation Scare? Not Really: First, we’ll debunk the recent inflation panic, explaining why the S&P 500's quick recovery is a sign of market strength 🤷🏻
The Financial Media Keeps Getting It Wrong: Next, we’ll critique financial media predictions, showing how actual market performance often contradicts sensationalist headlines ❌
China Attempts To Improve By Falsifying Data: Finally, we’ll reveal the real challenges in China's economy, emphasizing how things are not always as they seem 📝
Dive into these insights to navigate the market's waves with confidence.
Another Inflation Scare? Not Really 🤷🏻
The CPI inflation report for January came in above expectations, triggering a sharp sell-off in the stocks market of about 1.5%.
The inflation pessimists, always convinced that inflation is about to rear its head, are convinced that the moderation in inflation has ended and has begun to accelerate once again.
But the pessimists are wrong.
The methodology used by the statisticians to calculate the inflation data contains an important flaw:
The inflation index incorporates housing prices, but with long lags 🐌
If more current housing prices were used in the calculation of inflation index, inflation would be in striking index of Fed’s 2% inflation target.
This realization probably explains why by just a few days after falling by 1.5%, the S&P 500 was once again making new all-time highs 📈
The Financial Media Keeps Getting It Wrong ❌
Barrons is the most well-regarded finance magazine, and it’s a must-read for Wall Streeters.
Like most financial market gurus, they’ve been wrong about the stock market for the last year-and-a-half, and they continue to be wrong.
Following the release of the January CPI inflation report last week, the Barrons headline was:
“The Stock Market is Trying to Recover. Why it could drop 10% from here?”
First, let’s analyze the phrase “trying to recover.”
What Barrons is referring to is the 1.5% decline the stock market experienced the day the inflation report was released last week 📉
But Barrons neglected to mention the 37% rally from October 12, 2022 through February 13, 2024.
Barrons concludes that because the Fed might only reduce interest rates 2 or 3 times this year as opposed to the 4 cuts that’s being priced in by Fed Futures, the stock market is vulnerable to a 10% decline.
Let’s assume Barron’s is correct.
Who cares? 🤨
In 2023, the S&P 500 declined by 10% between July and the end of October, and then went on to rally, finishing the year up by 24%.
But Barron’s is probably wrong because the Fed would only cut rates by less than expected if the economy grows more than expected, and that’s good for stocks 💵
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China Attempts To Improve By Falsifying Data 📝
The Chinese economy is faltering.
The economy is slowing.
The property market is in a nosedive.
The authorities have imposed draconian capital controls so locals cannot pull their money out of the country 💸
The Chinese authorities are lying about their economic data to try to improve sentiment.
But investors have come to expect dishonesty and manipulation from the government.
Lies are no way to transform an economy 💥
