Why it’s tough to make the ‘hero trade’ here

This is a good place to jump into a lot of things.

There are plenty of times when strong hands intervene in the market; the economy isn’t that bad, there’s no financial crisis, and companies are still making money. The Fed is lagging behind, but it has more ammunition than it has had in this century.

There are a few reasons why this trade is difficult to make at the moment:

1. The gains since the start of the year have been impressive. Most assets are up significantly this year, and fund managers are sitting on 15% gains. Do you really want to risk that in August? Buy a five-month Treasury note, extract another 2% in margin, and then revalue in early 2025.
2. Liquidity is becoming increasingly difficult to come by. I think this problem is becoming increasingly acute. There is so much algorithmic trading, so much leverage, so much congestion that it is impossible for anyone to buy when the dance stops. This leads to unusually large movements in major stocks and bonds.
3. The seasons are tough in August/September. Even if you don’t want to wait the whole year, it’s a good idea to take a break here and watch the Olympics instead.
4. The Fed is aggressive in its interest rates. Should the Fed cut rates by 50 basis points in the next two meetings? Yes. Will it? I think the odds are very high in the market. The Fed will be stubborn, as Barkin and Goolsbee’s comments today suggested.

All that said, I can see the potential for a few days of market recovery next week as the market stabilizes after an emotional week, but I don’t see real money chasing it for the reasons mentioned above. Watch the Nikkei closely at Monday’s open for a clearer hint.