Friday Feedback: Wall Street, The Fed & Treasurys … Oh My!

Friday Feedback Treasurys meme

Friday Feedback: The “Everything All Of The Time” Edition

Great Ones, welcome to Friday Feedback … have a look around.

Anything that brain of yours can think of can be found. We’ve got mountains of questions, some better, some worse. If none of it’s of interest to you, you’d be the first!

Anyone else a fan of Bo Burnham?

What I'd miss keep Greatness flowing meme

Yes, today is the day we dive headfirst into the digital Great Stuff email bag to answer your stock market and investing questions!

No question is too big. No fee is too big.

Wait, you charge for this?

No, no, no… Yes. No. Absolutely not.

Great Stuff is free and always will be as long as I’m around.

So if you have a burning stock market mix-up, a fiery options opinion or a questionable ETF equation … send them my way and we’ll do our best to answer you in our own unique Great Stuff way.

Oh, you probably want the email address. Here you go: GreatStuffToday@BanyanHill.com.

One more thing before we get started. Apparently, many Great Ones like Larry M. and Dave are getting emails from us telling y’all that: “This is your last and final warning.”

I’d like to apologize to all of you regular readers who got one of these emails. We’re looking to reach out to former readers we’ve lost touch with during the pandemic, and y’all apparently ended up on the wrong list. Woopsy.

But don’t worry. We’re not going to deny you Great Stuff. That’d probably violate the Geneva Convention … and if it doesn’t, it should.

If you’re really worried, though … there is something you can actively do about it right now. Click something. Anything. Like this “totally not an ad” link right here: Click me!

No, that’s not an ad … or a Rick Roll. I wouldn’t do that to you. You see, clicking things in Great Stuff lets us know you really like us, and it’s a surefire way to keep getting your daily dose of Greatness. You can thank Apple for the fact that merely opening an email doesn’t work anymore.

With that out of the way… On with the show!

Everybody Funny, Now The Fed Funny Too

Dear Mr. Great Stuff,

Curious on your thoughts of why the market goes up on FOMC day even after there is no good news and the real reaction happens the day after? Seems like going short and buying inverse ETFs cheap on announcement day and riding out the real reaction over the next few weeks is a good play. Or am I missing something in this bear market?

Best,

— Scott L.

Welcome back, Scott! Good to hear from you again, Great One!

No, you aren’t missing anything in this bear market. This is business as usual for Wall Street and the Federal Open Market Committee (FOMC).

But you are missing something important regarding the market as a whole. And it all begins on a dark and stormy night…

Wait. That’s a different story. Never mind.

Way back at the turn of the century when I started writing about the stock market, we had what we called the “first tick” rule.

The rule basically said that the first tick in the S&P 500 Index after an FOMC interest rate announcement told you exactly what Wall Street thought of the Fed’s policy moves.

I believe this still holds true today. Wednesday’s first tick on the S&P 500 was sharply skyward. In other words, Wall Street got exactly what it expected … exactly what the Fed prepared it for … and it was happy about that.

The problem is that Wall Street has a lot more to digest than just interest rates. There’s the supply chain and COVID-19 lockdowns affecting global supply and driving inflation. And there’s the Russian invasion of Ukraine.

The Fed can’t fix those no matter what it does with interest rates and monetary policy.

Then there’s the fact that the Federal Reserve is going to push the U.S. economy into a recession as it aggressively raises rates to combat inflation. It’s like when you poison your body with chemo to fight off cancer. The solution won’t kill you … but it most certainly won’t be fun at all.

So the market rallied after the FOMC did exactly what it said it was going to do. That met Wall Street’s expectations, and it was happy for a brief moment. And then investors realized that all those other things existed and that this “cure” for inflation could bring about its own nasty disease.

Basically, the reaction was exactly what you should’ve expected. A relief rally on expected news, and a hangover upon realizing exactly what that expected news means.

I hope that helps untangle the mysteries of the FOMC and Wall Street for you, Scott!

Thanks again for writing in!

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Alright!

Now that we’ve dealt with the mysteries of the Federal Open Market Committee and Wall Street’s brief suspension of disbelief … let’s see what else we have in the ol’ inbox today…

Ooof. Treasurys? Really guys?

As you wish…

Torturously Titillating Treasurys

Mr. Great Stuff,

Are the Treasurys that the fed buys and China buys the same as what I can buy? You know, 1000$ bond for 10 years at 3.3% interest? Or are they bundled differently?

And since the fed is selling and China and others are not buying what happens to the price?

And could I, as an individual maybe with a few friends, buy at a steep discount?

Just wondering as I’m always looking for a deal. Thanks in advance!

Your friend — John M. from Cincinnati

Thanks for writing in, John!

But … can we discuss whether Skyline or Gold Star is better? That’s a much less painful topic compared to Treasurys.

(It’s a trick question: Dixie Chili is the best!)

Also, don’t take this the wrong way … but my kids used to ask rapid-fire questions just like that when they were much younger.

So when you buy U.S. Treasurys, you’re basically buying U.S. government debt. You’re giving the U.S. government a loan, and it will pay you back with interest. There are three different types of Treasurys, delineated by their maturity date, or the date by which the government promises to pay you back:

• Treasury Bonds (or T-Bonds) — These are more popular with really long-term investors and global central banks. These are long-term treasury investments with a maturity that ranges from 20 to 30 years.

• Treasury Notes (or T-Notes) — These are the most popular with all investors and include the oft written about 10-year T-Note. Their maturity ranges from two to 10 years.

• Treasury Bills (or T-Bills) — These are used by very short-term traders and investors, as they have maturity dates ranging from four weeks to 52 weeks.

Overall, all investors buy the same Treasurys whether they’re an individual retail investor or the Chinese central bank. Clearly, however, China probably gets volume discounts.

And since it’s the Chinese central bank buying them, it probably doesn’t participate in the market the same way you and I do. That’s central banks for you…

So maybe if you and your friends figure out a way to become your own massive hedge fund, global bank or central bank … you might be able to get bulk discounts. And if you’ve got friends like that, John, we need to meet up and have a drink. Lol.

As for Treasury demand, if no one is buying, the yield — i.e. the payable interest rate — on the bond/note/bill goes up to entice more buyers. If demand is high, the yield drops as the government doesn’t need to make the Treasurys more attractive.

And if there’s no demand at all … the U.S. Federal Reserve steps in as the “buyer of last resort.” After all, someone has to fund government operations somehow.

The thing is, there are always buyers for U.S. Treasurys because the U.S. dollar is the world’s defacto reserve currency. At least … it is for now. Should that change … watch out.

That’s just the tip of the treasury iceberg. If you want more, I suggest you check out this article on Investopedia.

Thanks for writing in, John! And Who Dey!

Pssst … About All This Crypto Confusion

I don’t have to tell you the crypto market’s been … well, choppy. Yeah, let’s go with that.

Ever since stocks started tumbling lower, crypto’s moved in sync. And the million-dollar question on everyone’s mind is: When will this trend reverse?

But according to Ian King — America’s No. 1 crypto expert — that’s the wrong way to play this crypto bear market. Instead, he urges people to find the best cryptos … and start buying small stakes while prices are at rock bottom.

Not sure where to start? Go here to get Ian’s insight now.

What I Like About You!

“So let’s nail it down to a specific section, eh?”

I did make it to the official survey, but it just didn’t work for me.

My favorite “part”?

The eclecticism.

{i.e. The whole is far greater than the sum of its parts…}

— Ken B.

Thanks for writing in, Ken!