Where are we going now?

Yieldstreet had me on to talk about the markets right before Jackson Hole. Two weeks later, we are still facing the same sort of market

At the end of August, I sat down with Peter Kerr of Yieldstreet to speak about the markets as part of the monthly discussion I do with them. I encourage you to go to their website and check out all of their content. They have a similar goal to my own, which is to make all investors smarter.

The set up of the market we discussed looked exactly as it I laid it out last week. This week is no different. The fundamentals of the economy and therefore the market, are eroding. Metrics such as housing have pulled back considerably. There are some that suggest we could see a 15-20% national housing price decline in the next year. Mortgage rates have almost doubled. While I think housing slows, I do not think we will have a major meltdown ala 2005-2008. However, we are clearly coming off the boil in many parts of the country.

New orders and other internal metrics in the economy have also slowed, quite rapidly in some cases. This is the next shoe to drop. Employment has still held up and this gives some confidence that we could still see a soft landing. It is possible. Of the last 14 rate hike cycles, the Fed has managed a soft landing in 3 of them. So the odds are not on their side. In addition, the Fed is really telling us they are going to hike until something breaks. A soft landing does not seem likely.

Positioning is quite bearish. We still see speculators materially short the market. We still see fund managers meaningfully underweight the market. We see put-call ratios moving sharly higher. There was a chart going around this week showing the magnitude of premium spent on puts over calls. It almost seems no one is left to get bearish. I believe this is what supported the market on really only a tiny bit of moderately positive news.

Markets like this need a catalyst. A catalyst can change the minds of the bears. They can also reinforce and bring forward the negative message. In the next 2 weeks we will see companies at conferences. We have already seen some names report earnings. The Fed has their next meeting in 10 days. A lot can happen to change prices. The ball is in the court of the bears. Either the news and events confirms the views and people will pres the bet. Or, they might have flashbacks to Q2, when earnings were better than expected, and everyone need to cover and invest a little in the market. The next couple weeks will tell us this.

I cover this all and some more in the discussion. Enjoy and …

Stay Vigilant