Just a few minutes ago before I started putting together this newsletter, we received news that our inept politicians finally struct a deal and they would vote about rising the debt ceiling on Wednesday next week. In my last newsletter rant about the debt ceiling, I expressed my conviction that in the end, the politicians will make a deal, unless they want to cut the tree branch, on which they are sitting, off under their own asses and screw themselves and us with them. I couldn’t believe that they would be that stupid, though I have no illusions about them anymore.

Based on this news, I would expect that the markets will rally next week. But the markets would rally despite the debt ceiling circus in Capitol Hill. The debt ceiling could only temporarily choke the markets but not for long. Why? Because this is all noise. None of it matters long term. This doesn’t drive the markets up or down. It only pushes them around the fair value of the markets and creates opportunities when idiots out there start panicking about a wrong issue and rush to exits. So, learn about the market and stop being an idiot. There are enough of them already.

So, what drives the markets? Earnings. But most importantly, earnings estimates! Earnings and estimates go up, the markets follow. They go down and the markets follow too.
Just recently, I saw this chart on Twitter:

If you think rationally, you will dismiss this nonsensical “analysis” as total trash. If you think the markets behave based on some arbitrarily created chart describing a bubble and a real chart scaled to the tune of the cartoon to make it look like we are about to crash, because the cartoon said so, you have no place in the markets, unless you want to lose money. The idiocy in the chart above is unspeakable.

Rather than guessing and wishful thinking, gather information about the markets. And it has been proven many times that earnings drive the markets. And you will also see how retail investors deceive themselves by being uninformed.

Many times, during 2020 and 2021 retail investors were posting on social media that the market is way overbought and in a parabolic rally and doomed to crash. They were posting charts like the one above proving their point. The bear market eventually happened but not when they wanted it. And all you needed to do is to look at earnings.

If you were betting on the market crash in 2020 and 2021 because the market (blue line) was in parabola you got badly burned. A simple look at earnings (orange line) could tell you that the earnings were skyrocketing too. It is a typical behavior after any crash. Look at 2009. A sharp rebound in earnings and strong rally. And the markets followed (despite media warnings us almost every day about an imminent second recession).

And the same happened in 2020. The earnings crashed but rebounded and rallied. This time, the markets went ahead of itself and rallied more than the earnings, but the earnings rally was parabolical too. There was no reason expecting the markets to crash. When earnings finally stopped going up, the markets followed.

Today, we keep hearing from bears that the markets are bound for a second leg down. Well, unless the earnings continue to go down, this will not happen. And so far, earnings came back better than expected (80% of the companies beat their expectations) and estimates are no longer revised to the downside. And at the end of the year of 2023 earnings are being revised up. If the companies continue to beat these estimates, the markets will follow higher.

And, if we look at the shorter time frame, we can see that the markets are more pessimistic about the earnings than the earnings themselves. The markets are lagging the earnings:

What is this telling you? Well, a simple thing! The markets have plenty of room to the upside. And if earnings start sloping up, expect a strong rally. And of course, the bears will get crushed on the way up, until they admit that they were on the wrong side and start the FOMO.
 
 

The debt ceiling was put in place by Congress during World War I and its purpose was to shift debt management from Congress to the government. Before, it was Congress who approved all expenditures. But during the War, it became difficult for the government to go to Congress and get approval for increasing war effort costs. So, Congress shifted this manner to the government, but it established a limit after which the government must have sought Congressional approval. If approved, Congress raised the ceiling and within the new limit, the government could do its day-to-day operations. But that’s when the circus started.

Since then, Congressional parties used the debt ceiling for their petty agendas, holding the US economy hostage. When Republicans were in power, none of them had any issues raising the debt ceiling and Democrats opposed it. When Democrats were in power, the tables turned around. They had no issues raising the debt ceiling and Republicans opposed it. When you look at it from this perspective, you will see how petty and stupid these politicians are.

And since then, this debt ceiling limit, which was also designed to curtail the spending, failed to do so. The national debt rose nearly 400% in the last 20 years.

But if you see politicians fighting over the spending, remember, next time when voting, that these politicians are fighting over expenditures such as Social Security, Medicare or Medicaid, Veterans’ programs, higher education, department of health expenditures, education, justice, and veteran affairs (among others). These are the biggest mandatory and discretionary expenditures.

Remember these politicians and in this case Republicans that they are the ones who will be responsible for your social security pay cut, or your Medicare failure. When at the voting booths, vote them out. They do not care about you. They have their retirements and Medicare secured but the government and they and their families will be taken care of no matter what. It is you who will be the useful fool cutting out your own welfare when you reach retirement.
Of course, you may be outraged over the raising expenditure and debt. You may be angry over Biden’s reckless spending, but you should not be supporting anything that cuts your benefits for which you worked hard your entire life and paid (involuntarily) into the system.

Despite all this circus, the markets held well. There were rattles about the debt ceiling, but it seems that the market expects politicians to strike a deal in the end. At least for now. That’s why we are mostly flat with some wobbles around. And tech stocks even exploded upwards last week (mostly on better-than-expected earnings). The FANG index (FGNU) skyrocketed a whopping 16% last week!

It seems that investors are finally waking up and realizing that all the stocks like META, TSLA, NVDA, AMD, NFLX, AAPL, AMZN, SNOW, MSFT, or GOOGL are still the best growth stocks in the market and selling them out is foolish. The investors were selling out of these stocks, and today, they are hastily buying back at higher prices. You may argue that these stocks are overpriced, and they are, but they will perform well better in today’s FED environment than last year’s FED policy. These stocks will outperform the market this year.

The latest market worries are about the debt ceiling and regional banks turmoil. It is my opinion that both will be resolved. The banks had a way better week last week and the debt ceiling is still on the table. Both parties will have to give up some of their agenda and get the things done.
 
 

Once again the market’s participants are freaking out about known issue that is probably no issue at all anymore. No one knows what is going on. The Media are trying to explain to us who pooped first but in the end, they are as clueless as everybody else. And the market circus continues.

In the morning, futures were up and the markets rallied led by tech stocks. Then they turned around and nosedived. Some blame banks, others easing inflation, or coming recession. Yes, it is the recession that has been coming since 2022 but has not arrived yet. And since it is the most anticipated recession in the US history, it will be coming for some time in the near future. And it may even arrive in the end if enough circus makers will feed the hydra of recession fear.

So, what’s the deal here? I think, the problem is that we received consumers’ sentiment report and it showed that people are not as eager to buy crap as they were in 2021. And suddenly, all the naysayers are screaming in unison “We told you so.” They fear that consumer will stop spending his hard earned money, companies will report less profits, and the economy will fall into the recession. Finally.

But the problem with this narrative is that the labor market is still extremely strong. Stronger than what the FED would like to see. And the stronger the labor market is, the more money a consumer makes and he is always ready to buy a new TV. Or go for an expensive vacation. I know it first hand as my family just purchased a vacation in Oregon that would cost arm and leg… you know, the flight, car rental, hotels, food… and new and fancy gifts in the gift shops on the main street in Portland.

My entire portfolio is hopelessly bleeding red, except Google (GOOGL) and Icahn’s IEP. Yes that same IEP that was trashed by Hindenburg not so long ago and crashed 40% is up 6% on shares buyback announcement. MPW crashed over 7% today after the company beat all estimates on their EPS and revenue. I guess they must have said something about their tenants and it was probably something nasty, so investors pooped their trousers.

Other than that, it is a nice, calm and steep rock falling on the floor today. Nothing to be worried about. For sure, the market circus is not over yet. It may end once we find out who the clown is.