Market Obsessions

When I first started in the business back in 1997, I was immediately entreated to bad bond auctions, Asian contagions, and other such niceties that caused stocks to panic lower. Every day people would obsess over IMF loans to Russia, the current status of Thailand, and many other nonsensical items that ruled over Wall Street like an Iron Fist. If you look way back into history, reading books like 28 Years in Wall Street by Henry Clews 1887 — you will learn that not much has changed.

Once upon a time markets were obscenely fixated on things Peter Lynch had to say, the machinations of tech analyst Henry Blodget, everything happening inside of China, the wisdom of Warren Buffett and David Tepper, the policies of a soon to win Presidential candidate, bond auction results, employment data, JOLTS data, PMI data, consumer confidence data, the size of Greenspan’s briefcase, the words changed in Bernanke’s speeches, the random statements from a Fed governor, the thoughts of the fucking Texas Railroad Commissioner, the late date reporting of Charlie Gaspirino and today’s ridiculous interest in the Korean stock exchange.

Let me just say this to you, once upon a time me and my idiot friends in the boardroom used to focus our trades around a group of stocks CNBC’s Joe Kernan would feature in his daily review of dot com stocks circa 1999. In his report, he would talk about the narratives of select names at 3:30pm and he did this for several months. Every stock he mentioned would soar higher, some in the triple digits. I’d spend my mornings on the Bloomberg terminal researching internet stocks and then load up on calls. This was akin to playing the lottery. I hit several times for small fortunes. After enough people became wise to this gambit, Kernan stopped his daily missives and the game was up.

Today we are obsessed with all things data center, but more than that — the memory trade. Because Korea is basically 3 memory stocks, markets look to the action in Korea to shape early trade in America. I cannot express to you enough how utterly stupid this is, especially since memory is a headwind for the AI buildout. If anything, we want memory to come down in price to reduce build inflation. But for whatever reason, in the markets infinite stupidity, Korea is now the tail wagging the dog.

It wasn’t long ago when any negative news out of China caused markets to spiral lower. All of America’s growth was predicated on their sales to China — now we could simply not give a fuck less. As a matter of fact, if you listen to conference calls you will learn that CEOs boast about their divestitures in China as a tailwind to geopolitical risk.

This past week we saw markets (tech stocks) lit up after META said they’d like to sell “excess compute.” Why wouldn’t they? After all, they are spending $100b+ per annum in capex to build gigantic data centers and after these builds are completed, I am sure they won’t immediately soar to 100% capacity. Plus, if they intend to keep building, why not take advantage of the free money offered to them?

Markets took this as a ruinous event, casting aside all AI stocks to the dustbin — because “excess compute fears.” More nonsense.

Truth is, these stocks were incredibly hot, crowded with fast hands and are now cooling off. In the meanwhile, money flowed into other areas of the market — all of the stuff that people ignored the past year — the proverbial olde man stocks.

It’s an interesting thing seeing the rotation trades happen. The trade often is alluring — because the stocks are complete dogshit and are cheap by price. But are they really? Many of these staples are food companies that are now beset by a wave of GLP1ers who no longer give a fuck about food or drink. These “defensive” stocks make hay when risk is off — but travel right back yonder to whence they came once stocks recover their momentum.

How does one proceed? Well, if you look at the macro data — stocks on any given day have a 58% chance of going higher. The median return over the last 100 years is +9% ish, the past decade +15%.

Best 10 days: you cannot afford to miss them.

If you think about the data above critically you come to one conclusion: buy the dips. The deeper the dip the greater the oversold bounce will be. We have seen this over and over and over — the only question is when will it bounce? These answers are never entirely clear, which is why I very rarely recommend going all cash. Markets usually look at their absolute worst just prior to their greatest rallies. We all recall the COVID lows and how that literally felt like end of days — same vibes in early 2009 as the financial crisis deepened to the point of clownish insanity.

We are nowhere near that level of pain and have been in a well behaved bull market, save the fucking tariffs wars of last year. What we are in now is a consolidation phase of the recent gains.

We will probably chop around for a month or two until earnings reports start coming out, either confirming the bull tape or offering signs of wear. It’s as simple as that. In the short term, markets obsess over fleeting things, technical analysis, news stories, rumors, opinions, noise. But, eventually, all that really matters are the earnings and revenue projections of the market leaders.

Happy 4th of July. Enjoy the fired crackers and hotted dogs.

Fly