ShortNote 8-16

This note updates the note of 7-31, mainly as caution if you want to buy stocks. If you invest long term and through the SP500 index, it is OK. Dollar-averaging is probably better.

You probably noted that the market bounced back quite nicely. The reason is the earnings of major companies were not bad and inflation is down somewhat. However, the market is probably too optimistic. Commentators Tom Lee and Jim Cramer are examples of optimism. The market rise has some supporting bases. First, companies have made quick adjustments to the Fed hiking rates (I speculated this in the last note). Second, no collapsing due to over leverage. In the past, quick raises of interest may lead to some over leverage being exposed. GFC is the extreme. Maybe companies and banks are more disciplined this time. Or maybe this downturn is fairly close to the last downturn (pandemic).

However, I suspect that the market is not out of the woods yet. First, the market clearly misread the Fed. See Markets are misunderstanding the Fed's inflation response, says former New York Fed President https://www.youtube.com/watch?v=nwZ0l77wTFc (8-15). I think Austan Goolsbee is very good [1,2], both his explanation to ordinary people and his analysis. Larry Summers’s interview [3] gives a slightly different angle. Then, there is China [4]. Because of lack of transparency, nobody can be sure how severe the debt of properties or other financial problems are. My guess is that the government will try to suppress it until the Congress is over. Then, there is the Russia-Ukraine War. So it pays to be cautious.

References:

1. Trump & Biden Spent Too Much On COVID Stimulus, Says Austan Goolsbee https://www.youtube.com/watch?v=ZjrS3NnIeCI (8-12)

2. Ask An Economist: How to Lower Inflation | GZERO World https://www.youtube.com/watch?v=fJ6yBSRN-5w

3. Summers: We've Seen This Movie Before https://www.youtube.com/watch?v=RrYJOiOFDx0 (8-13)

4. China Has Nothing to Hang On To: Lee https://www.youtube.com/watch?v=ZyRdKVIGUoY (8-16)

5. The real recession will be in 2023, says Richard Bernstein Advisors CEO https://www.youtube.com/watch?v=5auMPrWNh_4 (8-16)

6. No way the U.S. is avoiding a recession, Bleakley's Peter Boockvar warns https://www.youtube.com/watch?v=dXW7NlWTBBs (8-16)

(More in the shared folder)