I'm Not Worried

Let it play out

I sat my father down last October. I told him that the forward P/E of the S&P 500 was 28, far above its historical average and significantly higher than it had ever been. I told him he needed to get out of equities like I had. He did. For the last few months, he’s been complaining as the market continued up. He called me tonight and said thank you.

Look, the market was insanely overvalued. By almost any historical metric. The name for this was “the everything bubble” and lots of smart people were talking about it.

The S&P was down about 10% as of Friday and down another 4% in futures (although it’s actually recovering).

Clearly, the tariff announcement caught everyone off guard (including me). But the focus of the new administration for a while has been elsewhere. The Biden admin mostly financed its massive deficits with 2yr notes, about $9,000,000,000,000 (that’s nine trillion) of which need to be refinanced this year.

If bond rates stayed where they were, by the end of this year the federal government would have been stuck paying over $2 trillion a year just in interest.

That’s the end of this country as we know it.

As equities fall, they have fled into the treasuries markets and the 10yr yield has fallen drastically. Every basis point it goes down saves a billion dollars PER DAY in interest we have to pay for all this debt due this year.

If you look at market activity, institutions have been selling while retail (individual investors) are going on a buying spree with Thursday involving record purchases by your every day investor…that was then broken by a new record on Friday.

The sky isn’t falling and while I don’t think the economy is in a great spot, we have to readjust a few things to get our situation in a better situation for the long term.

There may be some short term pain but it’s done with good intentions because the other option is literally the end of times.

So, stay calm and remember markets always recover. I’m not a financial professional and this is not investment advice, but it’s unlikely VIX will stay this high for very long…