Interactive Brokers Chief Strategist Steve Sosnick joins Yahoo Finance Live to discuss Fed rate hikes, trends in the markets, and what's fueling meme stocks.
BRIAN SOZZI: All right, markets are digesting comments from Fed Chair Jay Powell this morning. He's been speaking at the Cato Institute and has reiterated, the Fed will do what it takes to fight inflation. Interactive Brokers Chief Strategist Steve Sosnick is in our house. Steve, always nice to see you and in person for change.
STEVE SOSNICK: Yes.
BRIAN SOZZI: This is good stuff. So I'm looking at a story right now on the Yahoo Finance homepage noting that mortgage rates, closing in on 6%. The highest since November 2008. And yet, you have the market really not trading down on this stuff. Why is the market overlooking signs that what the Fed is doing on rates is starting to impact the economy in a real way?
STEVE SOSNICK: Well, it's a tricky balance. First of all, good morning and it's great to be here. Great to see you both in person. To me, the interesting part is the market's kind of selective. I mean, this morning when you had-- this morning when you had Powell's comments, he was-- I didn't really think he was going to say anything that would contradict what he came out with recently at Jackson Hole, and he didn't.
As for the mortgage rates, yeah, there's all these little creeping problems that we have. But I think there's still enough liquidity going through the system, despite the rate hikes, despite the Fed shrinking the balance sheet, which is really only beginning in earnest this month, there's enough money still sloshing around that people don't really see the problem.
Plus, you know, gas prices-- when people think of inflation, they think of gas prices. I know you had gas-- the GasBuddy guy on earlier. And you know what? That's the most visible correlator to inflation that people have in their mind. You know, you're not changing your residence very often, but you're filling up your tank quite frequently.
JULIE HYMAN: Even though, of course, ironically, it's the housing that contributes a lot more to the long term inflation drivers. A lot more.
STEVE SOSNICK: Of course.
JULIE HYMAN: Then of course, what's going on with gasoline. You are still in a sell the rips mentality, all of this said, versus a buy the dip mentality.
STEVE SOSNICK: I am.
JULIE HYMAN: Why is that still in place? And what would get you to change your mind?
STEVE SOSNICK: I think, you know-- to me, there's two intertwined things. Don't fight the Fed. And then the other is buy the rips and sell-- I'm sorry, buy the dips and sell the rips. Well, don't fight the Fed seems pretty evident at this point. Which way is the Fed going?
If I'm-- when the markets were zooming higher because the Fed was cutting rates and adding liquidity, you know, as fast as they could, that was-- then you don't fight the Fed, you buy the market. Well, now, the Fed is raising rates and shrinking liquidity. Well, fighting the Fed means that you'd be buying in the face of that. So to me, you flip-- you flip the equation on its head instead of buying the dips.
For trade-- by the way, traders will always buy the dips. And they'll always do both. But the mentality should be, sell the rips because that's your time to lighten up in the face of this liquidity change.
What will make me change my mind? When I get the sense that the Fed is done. And I did not get the sense when we were talking Fed pivot, you know, through-- you know, let's say through much of July and early August. There was nothing to me that indicated the Fed pivot. And Powell stomped down on that hard at Jackson Hole. Until or unless we see that from the Fed and other central banks around the world, it's hard it's hard to not take that stance.
BRIAN SOZZI: Steve, should investors be selling any strength in these meme stocks. I know you follow the space very closely. We had GameStop out earnings after the close, they lost more money. An 8 minute and 59 second earnings call. A real-- I mean, they're just a real joke. But you're not seeing the stock pull back here. But should it be pulling back?
STEVE SOSNICK: It should. But I mean, again, you and I have discussed this at length. The fundamentals are not-- we could just sort of throw fundamentals out the window. You know, I mean, to me, the ultimate sell the rip opportunity was the recent run up in Bed Bath & Beyond, you know, capped-- capped by a restructuring announcement.
To me, if and when-- you know, you said what would make me change my mind on the other aspect. If they show fundamentals, sure, then start buying the dips. Until or unless they do, these companies are overvalued fundamentally. And so if the value isn't there, I don't care how much the hype is.
And it's not like you're bringing new entrants to the meme stock crowd. I think it's the same people recycling the same stories. You need fresh money and it's not coming in these memes.
BRIAN SOZZI: Are you just surprised by how those stories just continue to just keep believers involved. Some of-- the commentary on Reddit threads, GameStop, Bed Bath & Beyond, it's mind-boggling. It's stuff that I've never seen before.
STEVE SOSNICK: It's cultish. You know, and to be fair, a lot of people have made money by being part of the cult. And whoever the cult leaders are, and I don't know who that is, and I don't mean to cast an aspersion toward anybody, but you know, my feeling there is if you're early, there's an incentive to participate, right? Because greed is a huge motivator, right? It's fear and greed.
And fear is clearly not a problem when it comes to meme stocks. And greed is the big motivator. Well, if you can catch these waves early, you can do wonderfully. The problem is most people don't. And that's-- and that's where the sell the-- you know, that's where the sell the rip idea would come in.
JULIE HYMAN: So to what do you attribute then-- I mean, it's not true in all of these cases. But if there's not new money coming in, then how do some of these names continue-- I mean, not all of them have continued, but some of them have continued to perform relatively well or at least have these rallies back when they drop.
STEVE SOSNICK: Because there's no natural selling, really. It's more or less become a closed universe. You know, they're very difficult to borrow. And even if you can, people have learned the hard way that you really don't want to be-- even though, you know that the fundamental value is lower, this is not the kind of stock you short because you can get carried out. And people have.
And that's why they run up so fast because those who might normally provide liquidity on the short side, just being like, no, I'm not-- I'll let this freight train pass. And so, there's nothing really to bring it back into line. You've got these-- you've got committed owners and occasionally who turn promoters on social media.
And you don't have really a mechanism to bring them back into line from people selling, because the people who might sell are long gone and the people who would short don't want to touch it.
BRIAN SOZZI: Steve, I think some of these people are about to tweet at you.
STEVE SOSNICK: Oh.
BRIAN SOZZI: So you're in for a long day.
STEVE SOSNICK: I'm gonna get flamed, I'm sure.
BRIAN SOZZI: Yes, a long day for you. All right, Interactive Brokers Chief Strategist Steve Sosnick, always good to see you. Have a great rest of the week.
STEVE SOSNICK: Thanks, Brian. Take care, Julie.