re: Red! Green!! Red! Green!!

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S&P Earnings were positive for the quarter.

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Two weeks ago I read earnings are the best they've been in two decades. More than 1,500 companies have reported, with 77% of them beating earning estimates. That's 10 percentage points higher than the usual 67% beat rate over the past decade. It's not just AI, though. Small caps are joining large caps in the earnings and stock rally. Not every earnings winner operates a data center.

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Normal households are feeling the pinch.

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Very true. Inflation is still too high. The Fed may raise rates. Long-term money costs more. Low-grade credit is cracking.

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Asset owner feels wealthier. The person trying to buy a house or living primarily on wages feels worse.

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Also true. Sucks.

How little is Warsh gonna say this morning?
The markets will hate it.

Will he surprise us by somehow being perfect?
Tough balancing act...

I’m already sick of hearing his shite

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How little is Warsh gonna say this morning? The markets will hate it. Will he surprise us by somehow being perfect? Tough balancing act...

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The market doesn’t care what any Fed chair says.

It’s honestly a miracle the market is at ATH’s wirh the 10 year yield at 17 year highs.

The 10 year yield from 2012 to 2022 was 3% or less. It’s now holding 4.6-4.7% levels. When it moves over 5% you’ll see mass panic selling as the market realizes theres nothing the US govt or Fed can do to control the long end of the curve

The Vix has barely moved. If the market cared what the fed chair said you’d have seen it in Vix Futures today. Barely a ripple

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It makes sense if you think about it. People would rather buy the stock market than the 10 year. The rates need to go a lot higher to interest people.

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Not when the 10 year yield is higher than the earnings yield of the SP500.

For the last 12 months, the PE of the SP500 depending on whatever source you use is around a 27.

That equates to an earnings yield of 3.70%
The yield on the 10 year Treasury is 4.70%

So you actually earn more (risk free) from treasuries than the stock market. This anomaly (10 year yield rising, while PE multiples also expanding has never happened before, because mathematically it shouldn’t. There should always be an ERP (equity risk premium), that you gain from putting your money in risk assets like the stock market.

And it’s been inverted like that for the last 2.5 years. This is why some analysts see things breaking quickly. In 1987 and 1999 you had the market in a state in which the Treaaury yield was higher than earnings yield of the stock market.

In fiscal dominance the Fed becomes increasingly irrelevant. That's Warsh's job imo, to become irrelevant. The last time we were in fiscal dominance the Fed and Treasury merged with the Treasury making all the decisions. During the yield curve control instituted to inflate ww2 debt away in the '40s long rates were pegged at 2.5% and the short end at 3/8ths. Inflation was much higher. By '53 or so debt/gdp shrunk from 110% back under 70% and the Fed was granted its independence back.

They can't do that this time. We're not united like the post war era and bond holders don't want to sacrifice for our proliferate govt. There will be frickery this time. CPI is already complete BS and that's going to get worse. According to CPI health insurance has decreased by nearly 40% in the past 4 years, lol. Warsh has already signaled the Fed's intent to further tweak the inflation inputs they follow.

Bessent is driving the car now and I think he's going to go full emerging market and refi on the short end by continuing the Yellen tradition of skewing issuance away from duration. The next quarterly refunding announcement is early November. Expect the current 22% of bills to swell.

You're going to get every dollar owed on that 20yr bond but it's not going to buy you much by the time they pay you back.

I sure would love a green month or even week. It has been a while.

I been hedging big time lately (via puts) and went to almost all cash. I got a feeling a big volatility event is coming. Anyone else?