[DcifrThs]

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Hmm

One thing I need to understand that I dont is how the above post answers my question in any way.

The question is quite clear.

How negative must be the contextual reason given for a rate cut be to overcome the upside derived from a rate cut?

Looking at recent price action in relation to announcements from the fed, the negative context would have to be total catastrophe to overcome the upside.

Bottom line is that I think the disconnect between the negative context and the consequent (often extreme) upward price action e.g bad=good demonstrates that the markets are irrational.

As for Bias, well I have no investment intellectually and emotionally either way. I dont care what is right, I do care at reaching conclusions that are right whatever they may be.



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if you're saying mkts are irrational, i think you know i agree.

the bad news would indeed have to be catastrophic. mainly b/c corporate profits are still at near all time highs and so far have weathered the tighter money conditions.

given that the dislocations in the economy now will take maybe a two quarters to a year or so to work through to consumer spending and thus to growth, the current news would have to be very very bad to move markets down substantially.

markets are definitely irrational, but still not easy to beat.

in terms of betting, i'd rather take recessionary bets against specific aspects. i.e. for a $100 fall in financial wealth, consumer spending falls between $3-5. these losses are quick and work through relatively fast.

for a $100 fall in housing wealth, consumer spending fals between $4-$9. this reaction is slow and would likely prove a longer term damper on grwoth rates.

what i'd want to do is take credit spread bets on the places from which i think this spending would recede.

fundamentals really only make up (or should imo and in the opinion of my last employer) 1/3 of a trading signal. the remainder goes to 1/3 flows and 1/3 momentum. so outright shorting the S&P500, while easy, may not be the best way to execute yoru view in the markets.

so i agree markets are irrational for sure, but still not easy to beat and you can lose a ton trying to predict the equity market top rather than taking specialized bets.

but back to the conversation we're having, the positive price action makes sense given corporate profits, consumer demand, interest rates etc. for the most part. the large ratio of "up moves" to "down moves" in terms of size also makes sense to me but not in the degree shown by the market. in that sense, i do agree that the market seems to be heeding good news more than bad.

i also think it is looking far more short term since long term equities will ikely fall .

Barron