Calm Before the Storm
I drove across the US to move to Florida the week after Hurricane Ivan landed.
My California friends said I was crazy to move to a state with alligators and hurricanes.
It proceeded to rain nonstop in California, not Florida, for 4 months, putting California into a state of emergency while Florida blessed us with non-stop 80 degree sunny days all winter long.
It's much the same in markets.
Unpredictable. Calm before storms.
It appears we are heading into recession, yet many who run businesses tell me things are fine.
Venture funded companies are laying off workers as their valuations reset in alignment with 50% lower public tech public companies. Higher rates are problematic for weaker operators, like Bed Bath & Beyond. And layoffs are not just in tech. And now First Republic is in FDIC receivership.
History rhymes.
This reminds me of April 2008, when Bear Stearns (first their hedge funds, then Bear Stearns itself), failed and was bought by JP Morgan. A few other tremors happened around that time.
Then things were calm. Eerily calm.
Summer arrived.
August 2008 was brutal. The US Govt had to rescue Freddie Mac, Fannie Mae and AIG. Trillions were spent. September saw the bankruptcy of Lehman.
Rising rates are not today's only stressor (the Fed reducing their balance sheet is another one), but riding rates are a big stressor (SVB, First Republic, etc, as evidence).
Yet, stocks have rebounded nicely.
One starts to question one's own sanity.
And THAT is the EXACT mechanism of bear market rallies. They have to suck you in one more time, every time, to beat the last bit of optimism out of all of us investors, so that we give up, capitulate, and reach low valuations.
We are not there yet. Not by far.
That leads me to re-share this chart on bear market rallies after the dot com bust. Some are up 40% to even 50%. This is how we all get sucked in.
My favorite reads on this are Jesse Felder, John Hussman, and Danielle Di Martino Booth.
Beyond markets, I have been receiving inbounds from people on Twitter and LinkedIn wanting a special kind of $100M career guide. More to come on that front...