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Fed Fizzle - Resubstantiation Rally Hot Take Fails 6/16/21

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Mohammed El Erian might just be the King of Wall Street hot takes. I have often agreed with him, but lately it seems his takes are almost always bad. Very smart guy, too. But, ultimately just another Wall Street insider, Fed apologist. 

Wait for both tweets to load. 

El Erian's comment pretty much nailed the high of the day, just like my Aooga nailed the low. I laugh when that happens. These Wall Street guys just move on to the next nonsense spew and think nothing of it. They have no shame. 

So stocks have now wiped out 17 months worth of gains, and if they don't rebound right here today, the next area of strong sport is the 3400-3600 range. 

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I report where the market is headed over the short to long term weekly here

Shifting down to the 5 hour bars on the ES 24 hour S&P fugutures gives you some perspective on this. All the sport lines are downtrending. If there's no bounce this morning, it looks like this thing could drop to 3500 in a heartbeat. 

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Finally, a look at our usual one hour bars. 3670-3640 is the first sport level. The next is 3600. Prelim 5 day cycle projection 3550. 

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Ouch.

Yesterday, the Fed raised the Fake Funds rate to about 20 BP below the market. It's so far behind the curve it almost seems to be a joke. I mean, the CPI is 8% for cripessake and the Fed pegs its fake rate at 1.5 to 1.75. Yet Wall Street applauds the Fed for getting serious about fighting inflation. Who the fuck do they think they're kidding. Wall Street, and the Fed, are both criminally delusional. 

This morning, the 13 week bill rate has come back in a bit. That should last about a week before it starts skyrocketing again. 

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Meanwhile over in "risk off" har de har Treasury Land, once the 10 year blows through 3.50 we're looking at 3.70 in a heartbeat. 

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Oh the humanity!

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To understand where the market is going just remember this one simple rule. RULE NUMBER ONE. Don't fight the Fed, especially when it is light years behind the curve. It will be a long and bloody grind for long only players in stocks and bonds. If you are able and willing to play the short side there's still plenty of money to be made. But you must understand the context of the battlefield! 

The poster boy for excess useless speculation, BTC, will lead the way. 

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In the short run however, fear not. The target is only 12,000. 

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If they manage to hold above, or at least at, 20k, then we get a bounce first before this POS heads toward its ultimate demise. 

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All of the above is presented to you for free. Remember, you get what you pay for! If you really want to know what's going on, then join me at Liquidity Trader. Check out the links below for extended intros. 

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"I mean, the CPI is 8% for cripessake and the Fed pegs its fake rate at 1.5 to 1.75. Yet Wall Street applauds the Fed for getting serious about fighting inflation."

You really need to stop being so critical of the Fed. As you know very well, 1.75 is much much higher than 0.25. I mean, they are making the numbers go up. What more do you want from them? If you start at 0.25, then 1.75 is 600% higher. That's a huge percentification. That's 600 basis points! That's incredible. He's Volcker II. Who other than Jerome Powell would have had the courage to raise rates by 600% in a matter of months?

They could have just left interest rates at 0 and continued QE. They knew enough to stop poofing massive amounts of money into existence! They knew something was wrong! Doesn't that count for something? I mean, nobody knew that inflation was not going to be transitory. Who could have guessed that inflating all financial assets well beyond the realm of reason was going to result in problems? We had a pandemic! We have a Russia thingy. Bitcoin was about to become legal tender.

 

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NOT A BEAR MARKET IN AUSTRALIA

The Australian Stock Market only down 10% in 2022.

Vesus US market down 21%.

I expect this pattern to continue.

We dont have all the overvalued tech crap in our index and companies never got so overvalued here.

Plus we are resource stock heavy.

 

NO BEAR MARKET IN NICOTINE

Altria has only gone from $47 to $45 this year.

What bear market??????????

 

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2 hours ago, potatohead said:

 

Six months ago, separate friends of mine who know each other bought some residential real estate. We got into a four-way text conversation in March as rates crept up about the impact of rising rates on real estate. Did the basic math to calculate the erosion in financing power that the move from 2.5% to 3.5% or whatever had generated; and the difference between what loan/property someone might afford with an ability to spend $3k/month on a mortgage payment. Told ‘em prices must go lower. Fourth buddy agreed emphatically with basic math, but the other two insisted somehow magically purchasing power would prove robust & sticky. Didn’t matter for their small rental properties per se - although, their capital is  definitely stuck at cost… indefinitely. It’s just an anecdote about people, capital, hope & math.

Your chart is about people, capital, math & despair. 

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Considering how much the market is down, it's eerily quiet here, and on Twitter. I think this afternoon will be a bloodbath. 

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1 minute ago, Jimi said:

Six months ago, separate friends of mine who know each other bought some residential real estate. We got into a four-way text conversation in March as rates crept up about the impact of rising rates on real estate. Did the basic math to calculate the erosion in financing power that the move from 2.5% to 3.5% or whatever had generated; and the difference between what loan/property someone might afford with an ability to spend $3k/month on a mortgage payment. Told ‘em prices must go lower. Fourth buddy agreed emphatically with basic math, but the other two insisted somehow magically purchasing power would prove robust & sticky. Didn’t matter for their small rental properties per se - although, their capital is  definitely stuck at cost… indefinitely. It’s just an anecdote about people, capital, hope & math.

Your chart is about people, capital, math & despair. 

Rental real estate is different that stocks because the tenant is not only paying your mortgage, he's paying the interest on it also. So as long as you are cash flow positive, you come out ahead if you just hold. The tenant gives you a return on capital and of capital, regardless of price, if you just hold long enough. 

I know plenty of people who did very well by buying well located residential  real estate and holding it forever. The increase in income enabled them to buy more property. Wash rinse repeat, and never sell. Cash flow just grows forever.

But it's always about location. 

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Just now, DrStool said:

Rental real estate is different that stocks because the tenant is not only paying your mortgage, he's paying the interest on it also. So as long as you are cash flow positive, you come out ahead if you just hold. The tenant gives you a return on capital and of capital, regardless of price, if you just hold long enough. 

I know plenty of people who did very well by buying well located residential  real estate and holding it forever. The increase in income enabled them to buy more property. Wash rinse repeat, and never sell. Cash flow just grows forever.

But it's always about location. 

Totally fair.

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They call it equity buildup. You start with 20% equity. Earn a decent cash flow on it, and after 20 years you have 100% equity, and insane cash flow.  The trick of course is to have good tenants. It can be costly when you don't. But normally, a great property in a great location will take care of itself. Even if you overpay initially, as I just did in Nice. 

I paid cash. RE taxes, monthly maintenance fees, and insurance in France are all next to nothing. Generally, your total carry, assuming a cash purchase, will run about 1-1.5% of the purchase price. That's taxes, insurance, and CAM. 

Where they whack you is on the transfer taxes both buying and selling, and inheritance tax, particularly if you do not have direct family heirs. If the property is your primary residence, you are exempt from the capital gains tax. 

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Jim Grant’s on crapvision in our hotel room as we mow room service after a long nutty day of dune-buggying into Herzegovina to visit a big cave. 

My eldest points at the TV, sees the characteristic bowtie, and says, “It’s Bill Nye, The Stock Market Guy!”

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