Financology doesn’t exist because there’s a shortage of financial information in the media. It’s because the information is so bad. Three major television networks, and countless print and online sources, much of it free and worth even less. There would be little point in just rehashing mainstream data and views, so we don’t do it. This isn’t mere generalities … we cite specific examples.
Most of the time the bad coverage is just bad interpretation. Sometimes it’s outright factual slop. Just minutes ago for example a guest expert on Bloomberg, apparently trying to give viewers a reason to buy stocks, informed them that the “average S&P stock is 15% below its 52 week highs.”
This is a verifiable statement of fact. A quick check reveals it fails. The equal weighted S&P ETF, RSP, practically defines “the average S&P stock”. Its 52 week high is 155.77. It closed today at 147.27. Dividing the former by the latter yields 0.9454. That’s 5.46% … uhm … not quite 15%.
Yet the more serious misinformation lies in the area of narratives. Today’s poster child: The story that bonds and stocks are selling off because the market perceives the Fed will hold rates higher for longer. You heard it … it’s that grinchy, hawkish Fed spoiling all our market fun.
Just one thing that might pique our skepticism is the lack of attribution. On what factual data is this based? We have previously noted the noteworthy inflection in markets that occurred with the change of calendar from July to August. No need to take my word for it, just pull up a chart. Stocks peaked on July 31, then began to sell off on August 1.
A popular semi-explanation is that stocks are reacting to higher bond yields. Perhaps to burnish it with a pseudo-intellectual patina, it’s sometime cast as higher “real yields”. Okay, now we understand. Real yields went higher. Never mind why … we’re just supposed to think we’ve been gifted a genuine insight into underlying cause. We’re evidently also not expected to wonder how a difference in a few months or so of Fed policy could have such an outsized effect on ten-twenty-thirty year yields.
As you may have guessed by now, we have a better explanation for lower Treasury prices. And we won’t hold you in suspense … it’s staggering Treasury supply.
And we won’t skimp on attribution either. Our smoking gun, straight from the United States Treasury itself:
Readers will really want to check our source, but the upshot is that Treasury announced plans to go to the capital markets to borrow over one trillion dollars in a single calendar quarter. Note the date: July 31, 2023.
Meanwhile the mainstream (read Wall Street Establishment) media would have you believe that, after the Fed has spent the better part of a year telling us it intends to hold rates higher for longer, that it has finally just dawned on markets, inexplicably, on August 1, 2023.
Why would Wall Street want to mislead us? Alas, here we have to depart the domain of hard facts and logic for mere speculation. Possibly Wall Street has a vested financial interest in deficits and inflation. But rather than dwell on speculation, let’s return to the hard stuff, where we can state with certitude that every unit of purchasing power spent by the Federal government comes from somewhere. It’s not manna from heaven. Some is collected through direct taxes. The remainder is collected through the financial system.
If anything, the pressure of such borrowing demand may drag the Fed’s rate policy higher.
Another story making the rounds for instance is the historic unaffordability of homes. First prices soared, then mortgage rates skyrocketed. In other words, first the dollar lost purchasing power (inflation), then the cost of borrowing dollars rose. This one-two punch of lost purchasing power is depriving millions access to affordable housing. Where did it go? After all, it’s been said that deficits don’t matter.
Until they do. Folks, there may be an unlimited supply of dollars, but the supply of real, actual, capital is finite. What is taken by government is not available to the private sector. The Fed can only influence the form in which it is taken … either through deceased purchasing power of the currency, or though an increase in the cost of borrowing it. Or, as is presently the case, both.
Just don’t expect your favorite corporate news media to connect those particular dots…