I Still Have A Short Bias

Randy Newman Was Right

I love being at crossroads like we are now and thankful for the time to observe and dissect them in real time. It’s been a while since I’ve seen the markets essentially “taking a break” before deciding whether to go up or down. For range traders that’s a good thing. For me, it provides the time necessary to kick back and review the “what ifs” of “what’s next” in market moves. As much as I would like to report an “all clear” from a macroeconomic side I just don’t see it.

Let’s start on the positive side. The sun rose this morning and is expected to set later in the day. My family is healthy and so am I. What else . . . in reality, not much.

There’s a few cycles, reminiscent of the 1970s, that remain in control. Like always we’re dealing with problems of our own creation; disregarding and dismissing true capitalism 15 years ago by not letting banks fail and more. It would have been sheer disaster to let that happen the soothsayers preached. In reality, like so many gurus have espoused, all these actions or inactions as they may have been, simply delayed the inevitable. What we’re experiencing today is because of the actions taken; far to low interest rates for years followed by pumping far too much money into the world’s supply of capital to “survive” a man-made event. We did both of them wrong.

Inflation is embedded. It’s moderating now (before going higher) at levels not seen in years. I chuckle when markets rally because the month-to-month numbers are better; better than what? Simple macroeconomic theory suggests that higher inflation over an extended period of time destroys wealth creation. Some of the more ridiculous commentary I read suggests that since the effect is worldwide it really has no effect; really . . . since every economy is damaged in my opinion the effect is multiplied.

Higher recurring inflation requires higher interest rates to remain in place for longer periods of time. Sources of capital become harder to obtain. The inherent risk of bank lending creates a more cautious atmosphere and the cycle of less money available for growth continues. We created this, just like we did in the 1970s and face it, there’s no real end in sight.

So from five-miles up we’re in for a repeat of an extended period of negative economic conditions. Stagflation’s a bad word but it’s perhaps the most accurate way to describe what’s happening worldwide . . . where’s Voelker when you need him most.

I’m short . . . and I’m staying short. That doesn’t mean these markets won’t rally but there’s really nothing concrete to support an upside reaction for an extended period of time.

Hope you enjoyed this post. I’m just a young 68 years old; my Dad became a broker when I was 13. It’s time for me to ‘give back’ to all of you what’s in my head. It’s not always pretty but it’s based on history . . . and history, unchecked, repeats itself.

Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at dzimmer@substack.com so we can further help.