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We had a good week despite all the rhetoric, noise and cacophony bombarding the headlines. Looking at the action, one cannot help but remember the last time we experienced this type of action and in our opinion looks like we are somewhere between the 7^th and 9^th ending of this bear market. We do not relish the massive capital losses experienced by naïve investors that caught in the speculative bubble on the way up, but have not had the good fortune or luck to cash in before the steep collapses in crypto currencies, SPAC’s and overhyped growth stocks that have taken Trillions out of the capital markets. We only hope that they also kept a portion of their net worth in stable, sleepy assets, or at the very least, caught a portion of the oil boom.

This week reminded us that it is more often than not, better to hit singles and doubles instead of trying to hit grand slam home runs. Between the sudden collapse of yet another cryptocurrency, that took down other companies as collateral damage, and the disappointing mea culpas of the head Meta (formerly Facebook) as he sacked over 10,000 employees right on the heels of the new Twitter owner and his slash and burn approach. It looks like the aggressive moves by central bankers are creating a massive liquidity squeeze that crush under capitalized entities.

Fortunately, the markets were thrown a rather large lifeline when inflation stumped the best minds on Wallstreet as it came in well below expectations on Thursday. However, one monthly stat does not a bull market make, but it did catch the bears by surprise leading them to unwind their short sales in a sudden and dramatic fashion. Thursday’s 1,200 point rally on the Dow and the 760 point or 7.35% gain can only come from short sale covering in our opinion. The question will be “will it hold?” We hope so. Central banks are notoriously impatient and have a pattern of cranking rates too high, too quickly leading to the inevitable recession and bear market. Remember, historically inverted yield curves typically cause recessions and right now the 2year/10year spread is a negative 50 base points.

Or, will upcoming economic stats suggest that the low inflation stat was an aberration and rising prices are still the norm leading to further “higher for longer” mantra spoken by Jay Powell? The next few weeks will tell and given the next CPI comes the day before the December interest rate comes out, it is a binary bet we don’t want to put all my eggs on. Better to use a diversified approach and keep an above average allocation to cash.

The same applies to bond and real estate investors. In the long run we know our economies cannot function at higher interest rates because the accumulated debt issued by governments are eating into their abilities to fund necessary health, education, and transportation needs (that is the ever-increasing interest on the debt), so it is a tough balancing act to keep rates high enough to temper inflation, but not high enough to kill the economy.

Looking to next week, investors need to digest the latest Producer Price Index aka the key measure of inflation at the manufacturing level. In September PPI jumped by 0.4% with the core up 0.3%, so cross your fingers for a lower number on Tuesday. Perhaps a better signal might be US Housing Starts on Thursday. it was down 8.1% year over year in September and think it will be down even more in October.

On the earnings front, over 1,000 companies report with the biggest bump coming in on Monday including Lowes and Target and Home Depot on Tuesday.

Finally, as this is Remembrance Day, we need to take a moment and reflect on the men and women that sacrificed themselves so that we can live in a free society. We can pay homage to them by remembering what they did for us.

Regards, Steve and Michele

Happy trading.

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