What do these two unrelated stocks have in common? They are high-quality companies whose stocks were selling at what we deemed to be an attractive price. It did not matter that one was purchased when its stock price was going down, while the other was purchased when its stock price was going up; The price movement of the past has no bearing on whether the current price is a good value.
2024 has been a great year for the market: The economy has continued to grow faster than predicted; Inflation has slowly but surely gotten better; The elections are behind us, and there was a clear winner and no real protest. We enter the holiday season with a deep sigh of relief, but wondering, what now?
The Fed controls one rate, the overnight Fed Funds rate; all other interest rates are determined by the market, which is under no obligation to follow the Fed’s action. It has chosen not to do so this time because economic data has been strong. That positive economic data also confirms that the Fed didn’t need to lower rates in the first place.
I was reminded of this fable last week as once again the pundits on Wall Street cry, “Recession!” or at least economic slowdown. As we have chronicled already, this incorrect call has been going on at least since the beginning of 2023. They will not admit that they are wrong, but will keep making the same call until it is finally right.
The market is blowing up this morning and the question is, why? The answer is the same as always: Reckless speculators borrowed too much money against the wrong asset. This time it is the yen carry trade. Periods like this are not fun, but for prudent investors they do create opportunities.
