The Fed Is Likely On Hold, Even Though 2YR Yields Suggest Otherwise.

1.) FED – Today is “Fed Day,” where the Federal Reserve decides the fate of monetary policy…and in some people’s minds…the fate of humanity. That’s a joke. So will they raise rates or not? My opinion? The chances of the Fed raising rates today are basically zero. Like him or not, Kevin Warsh, the Fed Chair, is the most influential person on the FOMC. He was appointed by Trump after repeatedly arguing that interest rates should be lower. Warsh spent most of his career on Wall Street as a hedge fund manager and understands the markets as well as anyone, andI’m sure many of his closest friends are still influential market participants. He knows exactly what to say and what to do. This Fed will raise rates only if it has no other choice. It won’t intentionally crash the market unless it’s absolutely necessary. Based on the current data, we’re simply not there.

2.) P/E RATIOS – There are a lot of half-truths and wives’ tales in market lore. But for something to be true, it has to always be true. For example, take gravity. Whether you believe in it or not, if you jump off a building, you’re going to fall. Consider Isaac Newton’s laws. They work consistently, regardless of sentiment, narrative, or opinion. Markets are NOT like that. Price-to-earnings (P/E) ratios are said to matter. But if something truly mattered, it would matter all the time. Just look at tech. It was trading above 30x P/E, everyone was buying, and now it’s closer to 20x and no one is buying. Exactly because P/Es don’t matter as much as you might think. It’s all about market flows and sentiment over everything else. Some of you will say, well, over the long term, P/Es matter. Ok, but look at IGV (Tech Software Sector ETF). All those SaaS (Software as a Service) companies with predictable future cash flows are now trading at all-time low P/Es. Ok, great…but when does that turn? When sentiment and flows do. Most of what seems relevant today won’t be relevant in the future. A forward P/E today can look a lot worse tomorrow. What matters is money flow, sentiment, and trend. Did you know that Bill Ackman, one of Wall Street’s largest and most celebrated hedge fund managers, is down -20% year to date? I think we can all agree that historically he’s a better stock picker than most of us. But if “stock picking” really mattered as much as some think, I doubt he’d be lagging this badly. William O’Neil has said “…that 50% of the price movement of a stock is due to the strength of the general market, 30% is due to the industry group, and only 20% is due to the individual stock itself." What really matters in markets today are “the flows,” how to interpret them, how to exploit them, and the sentiment around it all. This is what our modeling system attempts to do. Might these “cheap” P/Es stimulate “the flows”? Maybe. We’ll let the signals guide. Ackman may be down -20% so far this year, but I don’t care much about celebrity investors like that. What I do care about are our models. Great White is lagging but has a history of catching up quickly, and our Tiger model is up +6.8% so far this year. Is that saying we’re better? No. Not at all. But we are different. Risk management matters too.

3.) REVENUES – Do revenues matter for public companies? I would argue yes, but not as much as "flows" and "sentiment." Lord knows we've seen plenty of great companies with massive revenues get whacked in the midst of slowing flows and bad sentiment. But at the end of the day, a business isn’t going to survive a bad market too long if it doesn’t have real revenue flowing into it. So where are we today in terms of revenue flows? Right now, the world's top line has never been greater. Will that scare some? Probably. But healthy fear in a market is always welcome.