This market is not the dot-com crash or the financial crisis. Here's how to play it

Published Sun, Sep 25 20221:05 PM EDTUpdated Mon, Sep 26 20227:52 AM EDT

We fear pretty much everything right now. We fear higher prices, traditional inflation. And we fear lower prices, cascading oil and copper. We fear the 2-year Treasury yield going much higher because that would mean another 100 basis points of interest rate hikes by the Federal Reserve this year. We fear it going lower because that would show that Fed Chairman Jerome Powell is letting up on his inflation fight, while it is still raging. We fear that earnings will be awful. But we fear that unemployment remains too low to thwart wage inflation. We fear World War III in Ukraine after Russia's big troop call-up. We fear the Chinese making a run at Taiwan. In short, we fear everything. So, let's step back for a second. While we are not in an FDR moment where the "only thing we have to fear is fear itself," we are not in a situation where things are intractable and the republic hangs in the balance, something that was true in 1933 when we actually did have more to fear than fear itself, and it was true in 2008 when so many big institutions failed that we were lucky the major stock benchmarks weren't cut in half. What we do have is a problem of price: Stocks went up way too much, leading into their peak in November of last year, which was the last time we saw a record high in the Nasdaq . The Dow Jones Industrial Average and the S & P 500 hit their records in early January. That's important because we lack a compass. At this point it means absolutely nothing how far stocks have fallen from their highs. Nothing at all. Or Club holdings Advanced Micro Devices (AMD) and Nvidia (NVDA) would have stopped a long time ago. We have only one benchmark like this and that was 2000 to 2001, when the Nasdaq overshoot by about 3,000 points off a 2,000 point basis. But the Nasdaq, at the time, was filled with unprofitable companies, with stocks soaring even higher, on a percentage basis, than they have now. The S & P 500 never really got out of control back then — and, relative to bonds, it didn't either. So price isn't as important as we tend to think because we don't have enough totems to judge how out of whack things got in November. You have to throw out where a stock has been. It's meaningless. But what's not been meaningless is the relationship between stocks and bonds. Back in 2000, bonds weren't much of a factor. However, back in November of 2021 they were, in retrospect, the most important thing that mattered because there was so much money in the form of stocks and bonds and loans, being created that the run-up, we now realize, had more to do with cheap money than with great earnings. We had an inkling of that when we saw the SPACs (special purpose acquisition companies or so-called blank check companies) and the junk IPOs (initial public offerings) start falling apart. However, with 600 new stocks to analyze, it was a pretty overwhelming moment. At this point, we all wish that Powell had pulled the trigger earlier. Before we are too harsh, though, if you go back to February of 2020, in the beginning of the Covid, only Powell really understood what awaited us, certainly not the president and definitely not Congress at the time. The Fed chairman, correctly, feared the economy was going to crash, and he would have been right. So he went really loose. What people seem to forget is that we were at a very perilous moment, one where you could have expected that American Airlines (AAL), Delta Air Lines (DAL), United Airlines (UAL), Carnival (CCL), Norwegian Cruise Line (NCHL) and Roy