Zero COVID quarantines Macao casino: https://www.usnews.com/news/world/articles/2022-10-30/macaus-mgm-cotai-casino-locked-down-after-dealer-infected-with-covid-media . Authorities have locked down the casino with guests and staff inside. No one would consider this an appealing holiday, with the possible exception of people who go on cruises.
WSJ: COVID chaos in iPhone assembly plant: https://www.wsj.com/articles/inside-a-chinese-iphone-plant-foxconn-grapples-with-covid-chaos-11667097816 .
Lula edges out Bolsonaro to become Brazil’s president – again: https://thehill.com/policy/international/3711728-lula-defeats-bolsonaro-to-again-become-brazils-president/ . Brazil’s politics have seemed to follow the US’s in recent years. The Orange Julius-like Bolsonaro has been pushed aside by a former president. However, the narrow margin of victory strongly suggests Bolsonaro will not leave the national stage, and turmoil will continue. WSJ: More: https://www.wsj.com/articles/brazils-jair-bolsonaro-luiz-inacio-lula-da-silva-face-off-in-tense-presidential-runoff-11667065780 .
More insight into market bottoms: https://www.fool.com/investing/2022/10/30/do-fed-rate-cuts-signal-bear-market-bottoms/ . According to the data in the linked article, market bottoms typically come quite some time after Fed rate cuts. Bottom line to me is “after” – that is the likely sequence of events, and then we are reduced to a timing issue.
But right now the Fed is raising rates, and everyone (well, 89% of economists) expects a 75 basis point increase at the upcoming Fed meeting. So we are nowhere near rate cutting. The likely sequence of events is therefore: (1) Fed continues to raise rates until inflation drops significantly; (2) Fed pauses rate increases as economy dips into recession; (3) Fed lowers rates when significant progress against inflation has been made, which is some time after we have dipped into recession.
Therefore, we can guess that the long-term bond market will peak after the Fed pauses rate increases. The stock market bottom will occur sometime after we hit step (3). This provides additional insight into why looking for the peak in long-term bonds is the most potentially rewarding focus right now.
The article in the link above concludes with what should be considered utter nonsense. No, no one should try to exactly time a market bottom. But both the bond and stock markets are almost certain to head downward from here. Yes, you will likely have a positive return if you invest now with a 20 year plus time horizon.
But just pick the median NASDAQ decline given in the article of 28%. Suppose the stock market declines 28% from here – to 72% of current value. To get back to even, that 72% must grow by 38.9%. Divided by 20 years, that’s about 2% per year. Timing does matter, and here we have an apparent sequence of events from past bear markets that should help time our current circumstances. More: https://www.cnn.com/2022/10/30/investing/stocks-week-ahead .
Technical update: Other analysis supports a possible 28% decline: https://www.yahoo.com/news/stocks-could-sink-25-liquidity-121500042.html . More on Treasury bonds: https://www.msn.com/en-us/money/markets/tremors-in-treasury-bonds-worry-wall-street-and-washington/ar-AA13xOJ8?cvid=b787e631fddf4f5e91fa5c6f071c4c2a . This article suggests the government may buy Treasuries to ease current liquidity issues in the market. But there are limits to this approach given the large amount of bonds already on the Fed’s balance sheet due to quantitative easing. WSJ: More: https://www.wsj.com/articles/rocky-treasury-market-trading-rattles-wall-street-11667086782 .
Economic events and data reporting this week, per WSJ: https://www.wsj.com/articles/economy-week-ahead-interest-rates-and-jobs-market-in-focus-11667156401 .
WSJ: The drone threat to Ukraine’s electrical grid: https://www.wsj.com/articles/ukraines-patchwork-air-defense-faces-new-threat-from-cheap-iranian-drones-11667122204 . The drones are much more expensive to intercept than they are to buy and launch. Meanwhile, the UN and Turkey work to save the Ukraine grain deal: https://www.wsj.com/articles/u-n-turkey-race-to-save-ukraine-grain-deal-11667157614 . Note that the loss of these grain shipments will add to global inflation. However, the worst pain will come to poorer countries that must import food staples.
Musk retweets false conspiracy theory on Pelosi attack: https://www.nbcnews.com/news/us-news/elon-musk-new-owner-twitter-tweets-unfounded-conspiracy-theory-paul-pe-rcna54717 . Um, shouldn’t Twitter ban Musk for spreading false information? My guess is that Twitter is now worth no more than half of the $44 billion he paid for it. It looks like Musk will run any remaining value into the ground. WSJ: More problems for Twitter under Musk: https://www.wsj.com/articles/elon-musk-takes-twitter-helm-as-social-media-sputters-11667043345 . Lose your advertising base, and lose the company. Advertising is 90% of revenues. Still more: https://www.wsj.com/articles/twitter-is-drafting-broad-job-cuts-days-after-elon-musks-takeover-11667143301 .