Tapering vanished as a theme yesterday. Just take it off the table. The bond market called the tune, even as most of the commentators insisted in looking at the stock market because they have forgotten which is bigger.
When the 10-year traded to 2.3% as stocks were still waffling about the direction -- that's off a point -- it was as close to a lay-up short trade as I have ever seen.
I have been leaning long for most of this whole move, but it is time to move to neutral and here's why:
It is that simple. Neutral's cool. Lots of money to be made in neutrality. But stocks went guilty until proven innocent. If the market goes higher, watch who attacks me on this. They will be blown out and you can't own their stocks. It is time to get mentally serious and stop dealing with all yahoos as they are children. The ad hominem attackers are about to go the way of those who owned Scient and Viant.
Sorry to be so pointed, but in a Twitter-dominated world you have to recognize that the opponents are ignorant because they don't have bond terminals because they are too expensive.
I am glad I am now neutral. It was difficult to be as bullish as I was after this run.
- The bull market in bonds ended. That doesn't mean bonds can't have moves up in price and down in yield, but those are now minor chord.
- Companies without growth or minimal growth -- the REITs for instance (not the mortgage REITs, which have been disastrous because they were caught on the wrong side not of the taper, but of the real market, which is now very different) have very little growth -- must now be priced lower to where their growth takes them, not their yield.
- Most emerging markets will continue cratering as they were being bought by the misinformed and those reaching for yield. Anyone who reached for yield will be a casualty here.
- The Fed, perhaps deliberately, is letting the market decide when tapering is over. The data is too good to keep the program in place. So all that matters is you watch the 10-year, which will now reflect either the growth of the economy. If it slows, rates go down as it is self-fulfilling and if it strengthens, where bonds stop nobody knows.
- Real-economy stocks with growth do better after the S&P futures mow everything down to levels where they are cheap.
- The rest of the world is hurt far more than our country over our higher rates because they were either trying to stabilize (Europe) or sinking (emerging markets, including China, which is very worrisome).
- People who have been in the market for a decade don't understand the power of bonds because they have had a benign impact. They ought to go get a bond terminal.
- All interest-rate-sensitive stocks will now be killed until they tell us how they are doing in this new environment. They are wrongly in the blast zone, but who cares.
- High-growth stocks will do fine as long as the rates don't move with great velocity. They always are.
- It will be hard to part with the stock-centric nature of the market, but that's now over until all participants recognize bond supremacy.