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$TLT - Bury Bonds
If you're like many investors, you have looked at the fundamentals of a business you like. Maybe it’s subscription sales for a software company, or the prospect of EV sales in the year 2025, or the cost of drilling an oil well, or - whatever.
It doesn't matter.
Nothing else matters right now - nothing else - besides the price of bonds.
I’m Mr. Market, and everyone listens to me. Except, maybe, the Federal Reserve.
Let’s look at the words of the Fed itself:
Hmmm… do you see Mr. Market there? I don’t.
I see “maximum employment” and “price stability.”
So, how do these look? Well, let's start with the easy one - employment.
After the Covid spike, Unemployment in the US is 3.8% - right near its historic lows. This is lower than the housing peak in 2007 and lower than the tech bubble in 2000… the only other time it has ever been this low is 2019. So, good job, Fed!
And how about Price stability?
8.6% at the last print, which is higher than any print we have seen since the bad old days in the 1970s. Not great!
So what is the Fed going to do?
It’s simple. It’s really, really, really fucking simple. Unemployment is low. The labor market is tight. They have nothing to worry about on that mandate. So they are going to respond to the mandate that’s a problem: price stability.
The Fed is going to keep raising rates, hard. They are also going to “jawbone” the markets, to let them know they are serious.
Is the Fed going to freak because stocks are in a bear market? No! That is literally not their job. Are they worried about your SaaS revenues or your EV forecasts or your oil well? No! Not their job!
The fed has two jobs. They are doing great on one, and the other needs work. They are going to put in that work.
Ignore the people who tell you the Fed cares about the stock market. They do, but only as a luxury. As a matter of necessity, they care about inflation. They are going to keep raising until it’s under control.
How do you get a jump on that?
The Fed is data-driven. And guessing inflation data is hard!
But someone knows more about all the data than you do, and they will tell you the answers.
It’s Mr. Market!
More specifically, it’s the price of bonds. When the market believes that the Fed has inflation under control, long-term bonds will rally. Period, end of story.
Watch bonds. They sold off initially after the Fed meeting yesterday… but closed the day positive today, in the face of a jackhammering for the stock market. That’s bullish!
In the big picture, though, they are just off the lows.
We aren't out of the woods. But the only path out is following bonds.
Listen to Mr. Market.
Remember, it pays.
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Hint: This company, founded in 1865, started as a pulp mill and was well known for making cables and rubber. From 1998 to 2008 they were the largest worldwide vendor of mobile phones. At its peak in 2000, they accounted for 4% of their country's GDP and 21% of total exports.
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