2023-09-29 What Is Lars Thinking ("WILT")

Submitted by Lars.Toomre on Fri, 09/29/2023 - 06:00
Paul Volker and Jimmy Carter at the White House

If one is a capital markets participant, surely one recalls the 1979 Saturday Night Massacre. Correct? Most will not since many were not yet even born. Brass Rat Capital suggests that one pause now to conduct a deeper dive to understand the "Nifty Fifty" period and what happened during the 1973 and 1979 oil shocks that resulted in the October 1979 Saturday Night Massacre and ultimately doomed the Jimmy Carter Presidency. Does one appreciate the horrific gloom during the period that the actor Ronald Reagan started his Presidency?

Experiential bias can be a bastard. Far too many Capital Market participants were not making decisions during the 2007-2009 Great Financial Crisis, let alone the 2001 Dot-com bubble, 1998 LTCM melt-down, the 1990 thrift liquidation, the 1987 Black Monday stock crash, the 1981 recession, or 1979 Saturday Night Massacre.

Experiential bias had many thinking the ten-year TSY yield was cheap around 4.40% when the real yield first approached 2.00%. Similarly, around that time that Suadi Arabia and Russia cut back the supply of oil to the global markets, the price for a barrel of oil was unlikely to go above $85.

As Brass Rat Capital wrote on 2023-09-07, NVDA closed at $470.61 per share the prior day. Lars had meant to bookmark the $484.48 closing price on 2023-09-05. Then he wrote "Thirty days from now and likely 60 days from now, the NVDA stock price will be lower. The valuation is stretched as are the Magnificent Seven in the NASDAQ." Where is that stock price today? $430.89 was the close on 2023-09-28.

Experiential bias is a type of cognitive bias that causes us to assume that future events will resemble recent experiences. In other words, it causes us to think that, because certain events happened recently, they are likely to happen again soon.

Is it not amazing that then one awakes this day to a 4.65% ten-year TSY yield and OIL pushing $96 per barrel? To those who dismiss why does it even matter, let Brass Rat Capital ask what scares one to shed one's Magnificent Seven exposure. BRC is having thoughts about the American housing market that effectively does not exist with current 30-year mortgage originations near 7.75% percent. The wildly overbuilt Commercial Real-Estate ("CRE") is generally plummeting in value.

And one wonders why Brass Rat Capital suggests that the ten-year TSY yield will go to at least the 5.25% area. Has anyone ever heard of 'Behavioral Economics?'