What Will Finally Signal A Market Bottom?

Make no mistake about it: for the last few months, I have been writing that I am waiting for a real capitulation moment – a moment of real fear and panic selling – to indicate to me that a bottom may be near in the market.

Although timing a “bottom” here is difficult, but it isn’t just like we are riding out volatility from the war or a slowing economy – we are truly at the behest of the Fed and its attitude on interest rates. If the Fed decides it wants to raise rates to 5%, the bottom is going to be much lower than if they telegraph they are going to raise until 3% and then stop.

This is the guessing game the market is trying to play: identifying the very first moment that the Fed gives any sign that it is going to back off its plans in the slightest (easing). So far, Jerome Powell has done a great job communicating to the market that this point isn’t near.

But, as we all know, the Fed has no backbone and this can change at any time. I’ve already written about the idea that the Fed is likely going to have to pivot and how extremely bullish for gold this will be.

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Additionally, I believe, as I told Phil Bak in a podcast last week, that there is still far more excess in crypto that needs to get carried out before we ever get to a bottom. This week I wrote about Mike Novogratz and why crypto “gurus” don’t have any more of a clue than the rest of us. There’s still tons of “assets” out there, however, that I believe are worth $0 that have massive market caps. For example, Dogecoin still has an $11 billion market cap.

Another issue to be mindful of is the fact that the consensus now is shifting to the market moving lower. I usually try to be on the other side of the consensus, but I actually believe this to be important because it isn’t until we get everyone on one side that we can “tip the scales” toward panic and have the capitulation moment the market needs.

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Despite this, it doesn’t mean I don’t see bargains in today’s market that I am actively buying. I highlighted some of these names in this piece last week. There are even some tech names, like Zoom (ZM), which I nibbled again this week in the $80’s, that have posted good numbers and generate cash that I think are worth keeping an eye on. What I don’t want to do, however is follow the Cathie Wood method of buying literally any cash-burning dogshit that isn’t nailed down to the floor anytime it dips. This is the definition of investing insanity and is the “active management” necessary to continue to propel ARKK lower, even if the market bounces, in my opinion. I wrote about this more here.

Trying to catch a bottom is a generally fruitless enterprise, though Bill Ackman’s tweet stream this past week about inflation did remind me of the “hell is coming” Covid bottom that the market experienced. I think in today’s market it’s all about knowing what the Fed is going to do and has little to do with technical levels of valuation. The Fed can put the screws to the market for as long as it damn well pleases and it shows no signs of wanting to let up at the moment.

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For now, what I want to put to discussion for my readers are the following questions:

  1. Is there still a Fed put? And if so, where do you think it is?
  2. What signs are you looking for that equity markets have reached a bottom?
  3. How white knuckled can Powell stay, holding the wheel, as the car races toward the brick wall at 100 mph? Now that he has a second term, is Powell going to be the guy that truly tries to sacrifice the economy to have his own “Volcker moment”?
  4. Is inflation going to roll over at any point, or will it persist?

I’ll be discussing these topics in an upcoming podcast with a guest that I know most of you love, but I won’t reveal just yet. It should be out in time for the long weekend.

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