I was thinking about how long it’s been since I posted, and thought, “This is no way to keep people interested.” Then I realized I was merely following the lead of the British government and simply kicking the can down the road, on a continual basis. People are still very interested in that, after all. In my case, the delay was two-fold; first, I was struggling for a while writing a talk that I delivered at The TradersEXPO in New York recently, so I was handling all the authoring I could. Second, as usual, just pondering what to write.
And then I finished the talk, and got hit with a topic. Funny how it all comes together at once sometimes. So what should we discuss this time? FUD. Fear, Uncertainty, and Doubt. For the most part, I think people associate that expression with crypto, which is not an unjustified perspective, given all the “shit coins” (pardon the old floor trader language) that have been issued over the past 1 ½ – 2 years. But in this case, it’s those old boring bond markets. What to do…
Over two years ago, I wrote about interest rates. I said once they turn, they maintain that direction. And yet here we are, the Fed saying no more rate hikes this year, and the bond market telling us it’s not happening anytime soon after the end of the year either. The headlines are there. One said maybe the Fed will actually ease rates again. Some spoke of the Dow sell-off as a result of the 10 year yield crossing below the 3 month yield. Inverted yield curve it’s called. What it means is that the long term prognosis isn’t as rosy as it should be given current shorter term rates.
The headlines aren’t confined to the US. German 10 Year yields dropped below zero for the first time since 2016. When rates were zero everywhere. If Germany is worried and having economic worries, so is the rest of Europe. But what about all that talk about cruise ships and speed boats and interest rates were going to keep going up once it began? I’m speaking of my own writing 2 years ago, of course.
Wrong; and I’m going to go with a simple theory. This is something that I’ve brought up previously, though not in the same context. People hate uncertainty. Markets hate uncertainty. Not knowing what’s going on is worse than knowing what’s going on, even if what’s happening is not to your liking. At least you know what’s happening today and what will most likely be happening tomorrow. We don’t seem to know much these days. We have a trade war. We have factories closing and opening. We have countries figuring out their lives. We have lots of questions. And that’s when we can end up with problems.
Did I mention the US government shutdown? I didn’t. That one isn’t a question. That one’s fact. The US had over 10% of its workforce unemployed for a number of weeks…over the holidays. Can’t be a good result, and certainly plays a part in our current situation. And that situation is a lot of uncertainty, and an economy whose strength we were recently discussing and that is now, possibly, headed in a recessionary direction.
Fear, Uncertainty, and Doubt. I sure do hear that one a lot! Stay away from the crypto world. It’s fed by this! You can’t trust it. Yet here we are, with crypto markets exhibiting historically low volatility, and everyone questioning WTF is going on with global economies. Pardon me a moment, I need to chuckle quietly to myself…
Better now. This is interesting to me, as I rarely know what’s the dog and what’s the tail in markets. We’ve already learned that’s why I use charts. Don’t need to know, just need to act. But that’s not what the blog is about. The blog is actually about, “Is the dog wagging the tail, or vice versa?” And here’s where I start reaching, but hopefully generating a bit of thought. I reach plenty. Like when I said not to laugh at Trump becoming president when he first announced and late night was making jokes for different Trump reasons. People thought I might be reaching then too. So, yeah, stuff happens. And we can only move forward.
So why do I wonder which is the dog here? Because there are a lot of fundamental reasons for the markets to be confused and a bit spooked perhaps and it’s manifesting in bonds. But if we continue to believe in cycles, and pendulums and other previous discussions, then we need to look at a long time equity rally and wonder if the cycle is ending, no matter the news. So perhaps FUD is merely the excuse. Maybe overbought conditions at some point have to catch up. And maybe, actually, that was leading the movement. Wait, what?
Let me take a shot here. Again, something to ponder. As always, I’ll wait for charts to fully convince me. I’m not there yet, but I am getting closer. Equities may be done, for now. First time I’ve said that, and maybe, hopefully, they aren’t. But if they are, it will happen as we go towards recession. If the economy begins to accelerate again, all bearish bets are off. For now, though, there are some warnings, and they begin this time with FUD.
An on again, maybe off again trade war. A on again, maybe off again Brexit. People just want to know how to plan. Not so much to ask. They plan their mortgages. We can spend this much on a house for 30 years. They plan for college, or at least try to (talking in real time here). Anything can go wrong with uncertainty. On a household level? Medical costs come to mind, but that is an entire blog chapter by itself. But on a larger scale it’s, “When will the government shutdown end?” “Will I lose my job if the trade war continues or will it be good for me?” “Is my country part of the EU or isn’t it?”
It’s really tough to invest for the future when questions like those hang over a person in the present. Because when investing for the future, we know the present is the only real information we have to go on. And when that information is vague, or worse, full of result possibilities bordering on opposite extremes, it’s that much worse. It is, in fact, the hardest. So how to adjust? Watch the charts. See earlier signs of large directional continuations or changes. Use tight stops. Hmmmm…bonds or crypto? Both.