Musings On Markets: May 2021

As politicians, commentators and competitors have jumped in to exploit the breach, financial markets knocked off $81 billion from Facebook’s market capitalization. If Facebook was trying to preempt its critics with this announcement, the Cambridge Analytica story has knocked them off stride. By the start of 2016, I had changed my story for Facebook from a Google Wannabe to one that would eclipse Google, with added potential from its user base. That said, the Fed effect at the start of 2018, as I noted in a post at the beginning of the year, is larger than it has been at any time in the last decade, perhaps setting the stage for the tumult in unique boutique and bond markets in the last few weeks. While rates were low in the 2009-2017 time period, and the Fed did play a role (the Fed effect lowered rates by 0.77%), the primary reasons for low rates were fundamental.

When that time comes, the market will correct. There are two prevalent explanations for momentum, and today the choice will make you more or less worried about the power of the trend. While there may be an element of truth to this, I am skeptical about any Fed-based arguments for market increases and decreases, because I disagree fundamentally with many about how much power central banks have to set interest rates, and how those interest rates affect value. You expect to live to the age of 85. How much money should you place in the retirement fund each year for the next 20 years to reach your retirement goal if you can earn 12% interest per year from the fund? The bottom line is that if you are trying to get a measure of how much treasury bond rates will change over the next year or two, you will be better served focusing more on changes in economic fundamentals and less on Jerome Powell and the Fed. The worst case scenario, and some have bought into this, is that the company will lose users, both in numbers and intensity, and that advertisers will pull out.

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