The Rock is a precipitous fall in equities, and the smell? That’s the whiff of stagflation. You caught it in the latest NY Fed SCE report::
“Median inflation expectations increased by 0.1 percentage point (ppt) to 3.1 percent at the one-year horizon”,
“The share of households expecting a worse financial situation one year from now rose to 27.4 percent, its highest level since November 2023.”
“The mean probability that the U.S. unemployment rate will be higher one year from now—jumped up by 5.4 ppt to 39.4 percent in February, its highest reading since September 2023.”
A real feel-good story. And that smell might make you puke.
Worst Day of The Year For Equities
Not a banner day for growth investors, especially Tesla bulls. TSLA is now down nearly 50% from recent highs.
T-Bill and Chill seems to be the winning strategy so far this year.
Not Investment Advice but - “This too shall pass”
According to legend, the wise men finally boiled down the history mortal affairs into a single phrase, 'This too will pass’.
What’s an investor to do?
Keep a long-term perspective focused on your personal goals.
Understand that downturns are normal—and history favors the patient.
Focus on underlying value and build in a margin of safety rather than chasing price action.
Remember: nobody can predict the future.
Adopt intellectual humility—be wary of anyone claiming certainty.
This has been the stance of this blog since the beginning. Warren and Charlie said it best:
“In order to succeed, you must first survive.”
“Never interrupt compounding unnecessarily.”
Smart.
With the Fed on blackout, we’ll see what leaks out of the Administration mouthpieces and what the JOLTS data brings next.
Do Central Bankers Run the World?
Imagine the U.S. public electing a former Central Banker to be President. In Canada, they basically did—granted, Mark Carney was head of the Bank of England, not Canada.
Still…
Central bankers should be easy targets in any campaign after the last 20 years.
Do Inflation Expectations Matter?
Quick history lesson:
Back in 2021, Jeremy Rudd at the Fed wrote a paper trashing the New Keynesian idea that inflation is driven by expectations. Rudd argued that “anchored expectations” became an excuse to adopt policy mistakes.
He suggested that real-world factors—like actual inflation and economic conditions—might give a better understanding of inflation dynamics. Something to chew on while you read every inflation survey this week.
The Only Honest Answer:
“I Don’t Know.” It’s the right answer to just about everything in the markets.
Since I don’t know, I’d be happy to hear your takes in the comments - have at it.
I’d write more about the day ahead, but my blog experienced a “massive cyber-attack”.
XTOD’s:
XTOD: In our view, the market is discounting the last leg of a rolling recession, which will give the Trump Administration and the Powell Fed many more degrees of freedom than investors expect, setting up the US economy for a deflationary boom in the second half of this year!
XTOD: The S&P 500 just erased 9 months of gains in only 12 trading days...Markets can handle bad news, but not uncertainty.
XTOD: Plan appears to be more government at the border (trade and immigration) less government inside the border (doge and taxes). Rebalance the economy from the public sector to the private sector. There’s obviously a price to pay for that. How big? I don’t know. How much pain are they willing to tolerate? More than people thought.
XTOD: I think it’s obvious that Twitter’s problem is Elon Musk working remotely and being too focused on DEI issues.
XTOD: Your ultimate success is governed by your ability to tolerate the uncertainty on the path to get there. The one who can tolerate the most uncertainty is the one who will eventually win.
https://x.com/CathieDWood/status/1899180530404413859
https://x.com/Stocktwits/status/1899232407967920380
https://x.com/FerroTV/status/1899153699299287229
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