The NEST Edge – (These articles are provided for historical context)
The Fed Pivot/Divot dive – The NEST Edge. A monthly webinar hosted by NEST Managing Partner, Gloria Park, with CIO and Partner, Sean McDougle. They discuss what the markets and economy are currently doing and add their outlook on portfolio management. You’ve seen us talk about “Sean’s process” and how we do things different than other firms. Well, The NEST Edge shows you exactly what we mean by all that!
November 2022 – Be sure to check out our current Nest Edge by clicking the Category labeled Nest Edge
The longer I’m in this business the more I see the similarities between the American financial system and a happy hour. And I get it, I love a happy hour, shocker. I’m writing this right now at a happy hour. Everything is fun and the vibes are good, until the next day.
We (the US economy) are unfortunately waking up to that next day. Everyone has been there.
That moment when you first wake up and immediately regret all the decisions of the previous day. The “alarm” has gone off, we (the US economy) have been on a rager, living on Coors Light and shots of Tully for years, and it’s time for the hangover.
The best description of a hangover I’ve ever heard is you’re borrowing happiness from tomorrow. Borrowing happiness from tomorrow in economics is debt. It’s never a good place when you are coming out of the fog of the previous night’s debauchery and you go to look at your credit card to see what you did.
Thursday was CPI day and the numbers came out pretty much in line with what we expected.
we had it at 7.63% and it was 7.7% which is a decline from 8.2% last month.
We thought a big move in bonds/treasuries was possible but the magnitude of the move in equities surprised even me. Amazon is on a hiring freeze at corporate with layoffs coming, they are trying to sublease warehouse space. They gave very dark forward guidance on their earnings call a few weeks ago and their stock was up 12% today. This is the American financial system at its finest my friends.
Last week all the hoopla was the FED pivot. Powell squished that. This week it was the election. That got squished, and now the CPI. So many damn narratives and so many people chasing.
I’d love to have a wonderfully crafted explanation for the 5.5% up move in the S&P 500 Thursday. But all I have is that people have lost their minds. Next, I expect to see data on short squeezes, hedge fund collapses, and other option abnormalities, but at the end of the day, it’s the same crap.
You have the entire financial system that got addicted to cheap money. Coming off that addiction begging and begging (like a dope fiend at rehab) for things to just go back to the way things were so it can get its fix.
Even if the FED stopped (they aren’t) raising rates tomorrow, the damage is done. The turkey is cooked. My favorite in all this mess is the crypto space. One of the largest crypto exchanges (FTX) has been in hot water this week because it appears that a peer who was looking to buy them passed once it saw their books were a dumpster fire. Crypto has been in a full-scale sell-off the last few days but guess what, CPI was “better than expected” so all of crypto is up on average 10%-30% across the board.
Today is one of those moments in time that we will look back on down the road and it will be so obvious we are in the dying stages of a bubble across multiple areas.
At the end of this wild day, our view hasn’t changed. We do see cracks that maybe getting back into treasuries/gold is returning to our radar but that’s gonna need some time. We are long in the US dollar and in our most aggressive portfolio, we are short on consumer discretionary, high-yield bonds, financials, tech, Russell 2000, amazon (new), apple (new), and Tesla (new).
Buckle up buttercup.
Sean McDougle, CFP®
Chief Investment Officer & Partner, NEST Financial