Market Rhyme and Reasons 2/18/18

February 8, 2018

Market Rhyme and Reasons

For days we have heard that the increase in the bond yield has caused this market sell off. I don’t buy it! There are other external factors:
For instance, Janet Yellin the soon to be replaced Federal Reserve Chief said in an interview with CBS a few days ago that the stock market and real estate valuations are “high”. She then left people in suspense by saying she didn’t know if this was “a bubble or just too high”. Fed chiefs have a terrible habit on their way out of going out with a bang for the next chief. Comments matter. For instance, after the internet meltdown in 2000, Alan Greenspan later admitted that he consistently raised interest rates to correct the market…in other words crash it! Fed Chiefs are typically treated like gods by the media and politicians, so their comments do matter and probably hold more market weight than a slight increase in bond yields.
The other elephant in the room is automated electronic trading. Institutions have set up elaborate computer program models that automatically sell off stock positions when certain market levels are reached called stop losses. These are the triggers that saw the market quickly go from 500 points down to 1000 points down. The human element is a thing of the past just like when stocks traded in fractions instead of decimals.
The last factor that could be the biggest is what Jim Cramer of CNBC called the “Morons”. The big money trader/billionaires/institutions have the ability to move markets single handedly sometimes for political leverage or simply downward profit. George Soros is the prime example.
Look, all indications are of a strong economy with great GDP, increased labor participation rate, millions less people on food stamps, companies increasing pay/bonuses. Remember the market did not move from 2014-2016 and hovered around a Dow 18,000 and in 14 months went to over 26,000. Many of us have had conversations over the last few months as to when the market will give some back.
Everyone is a genius when the market is high but when the market is going down and you have downside protections or income guarantees you quickly become the smartest investor in the room.