To The Moon

My oh my! What a start for the stock market in 2023! I am sure many of you can sense uphoria in the air but it is wise to give ourselves a reality check time to time. Let's take a look and ask ourselves if we are really out of the woods?

The emperor has no clothes

The price of TLT is generally inversely correlated with changes in interest rates. When interest rates rise, the value of existing bonds falls because investors can purchase new bonds with higher yields. This leads to a decrease in the value of TLT. At such low levels, it is signaling the likelihood of further rates increase. 

Next we look at the strength of the dollar, a rising dollar generally puts pressure on the stock market. It indicates that investors are becoming more risk-averse and seeking safe haven assets like the U.S. dollar and U.S. Treasury bonds. This can lead to a decrease in demand for riskier assets like stocks, which can also lead to lower stock prices.

Finally, we see how the stock market is ripping especially the past week. Individual stocks rising 20% on the back of bad guidance in the current earning season is common

Eventually, one of these three has to give as they narrates a completely different story from each other

Current environment we are in

Let's quickly breakdown the state of the current macro environment 

- We just received a hot CPI

- Bad earnings & guidance 

- QT still ongoing 

- Record high credit debt

- Lowest saving rate among consumers

- High interest rate environment 

Clearly we are in a very bad place currently. 

Thoughts

This goes back to the title of the article, the market can remain irrational longer than you can remain solvent. We can never predict short term price movement but eventually price will reflect reality. 

The recent price action of individual stock reminds me of similar price action in 2021 where stocks are setting all time high prices. However, we do not have the backing of the FED money printer and in a completely different environment this time round. 

I would not FOMO into stocks currently and have taken steps to hedge my portfolio by selling covered calls and buying VIX and SQQQ calls 

It is also a good time to stock up cash for buy the dip,(hopefully not a crash) opportunity in the near future. 

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