The Delusional Markets: Volatility, Narrowness, and the Fed

📉Volatility is expected due to the narrowness of the equity market and the impact of inflation on bond markets.

💰The cost of capital for many companies is high, while large companies dominate the market with subzero cost of capital.

🌍The strength of the US economy and the labor shortage contribute to investor optimism.

💵Long-term bond yields expected to rise in the near term due to confidence, but in the long term, they are likely to decrease.

💼Investment-grade companies with access to the bond market benefit from lower cost of capital, while others face challenges.

Why is volatility still expected in the markets?

—Volatility is expected due to the narrowness of the equity market and the impact of inflation on bond markets.

What contributes to the delusional state of the markets?

—The delusional state of the markets is influenced by the Fed's actions, the narrowness of the equity market, and the strong US economy.

What is the current state of long-term bond yields?

—In the near term, long-term bond yields are expected to rise due to confidence, but in the long term, they are likely to decrease.

How does the cost of capital affect companies?

—Companies with access to the bond market benefit from lower cost of capital, while others face challenges.

What is the impact of the labor shortage on investor optimism?

—The labor shortage contributes to investor optimism about the strength of the US economy.

00:00Volatility is still expected in the markets due to the narrowness of the equity market and the impact of inflation on bond markets.

10:27The equity market is dominated by a few large companies, while smaller companies face higher costs of capital.

11:46The US economy is strong, but there is a labor shortage.

12:59Long-term bond yields are expected to rise in the near term due to confidence, but are likely to decrease in the long term.

13:37Investment-grade companies benefit from lower cost of capital, while others face challenges.