(part 2)

>This is tech driven markets and it does not like rates at 5% meanwhile inflation at 5% as well.

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This is not exactly accurate. Modern high-risk, speculative tech is very sensitive to interest rates because they tend to be debt factories, but there's plenty of tech that does fine in 5% rates, which are not historically very high at all. How well a company does in that circumstance will depend a lot on their balance sheet and market dynamics, just like any other company.

In fact, I'm looking at the historical FFR and tech has done very well during 5% FFR ranges, including through the 1990s and the mid-2000s.

And while CPI wasn't 5% then (and I agree that this matters) it did commonly trend around 3-4%. We'll come back to that.

The problem ultimately comes down to the fact that your argument is that the tech market now is more vulnerable than the tech market of the 1990s was, or as vulnerable... and that's not the case. In the 1990s, the tech market was still largely decoupled from actual business tech reality. Darlings like Netscape and Red Hat were upstarts at the time. The biggest excesses then may look a bit like the biggest excesses now, but we're also throwing in significant established names in there, like Microsoft. Tech is just much more heavily embedded in the business cycle now than it was then.

So contrary to tech being vulnerable to the rusty dagger of 5% FFRs... it's probably more resilient than it was the last 2 times this happened as an overall sector.

And the stuff that isn't, like Roblox and Tesla and other speculative stocks tied to tech that's debt sensitive?

A lot of that shit has sold off. Sometimes to the tune of 90%.

That crash you're calling for? 5% interest rates aren't news now. That crash has already happened... and it can happen again, but you have to then consider the impact to index weighing and how market parity works.

TSLA, for instance, at the end of 2021 was close 7% of the weighting in SPY.

Now? It's 1.64%

The simple reality is that the index has already largely adapted. All of the stuff you're calling out has lost between 3-6% of its weighting since 2021. The market has de-leveraged, and while some like AAPL remain high on the list, the weights of defensives and other strong cyclicals has increased, reducing the impact of the inflation impact you're citing.

Point blank, your thesis made sense in 2021 for a correction, it does not make sense in 2023 for a crash because it doesn't take into account how the market works mechanically.

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>Meaning Fed will push towards crushing inflation and bringing it back below 2% even if it means causing recession.

What the Fed means when they talk about a recession here is that they're willing to accept unemployment up to 5%, and I agree with them. Much beyond that and their other mandate will kick in.

There's a lot of talk about the Fed just beating the country into the ground to tame inflation, but it's mostly empty. The Fed is definitely not saying that and JPOW has repeatedly said they'd react if things got out of hand.

And this situation is not binary. It's not "the Fed tightens and the market crashes, or it loosens and the market flies."

The reality is that sitting at 4-5% FFR while the market expands is pretty common, even during high tech periods with elevated inflation up to 4%.

And while 2% is a target, 4% is the real number the Fed will accept. They won't reverse the FFR on 4%, but they will stop raising on that number because they will be able to declare victory... probably even before then. That would represent a 150% reduction in inflation and a solid downward trajectory.

At that the point, the risk of overtightening is way too high and all the market really needs is predictability. I think the larger question is where we end up relating to a terminal FFR at that time... sure, if that terminal FFR is 10%, then you have a real economic problem... but it's not going to be. Hell, the odds of them getting above 6% with current data is really low.

The idea that the Fed will just relentless crash the market because they're only a few percent away from their inflation goal is a fever dream, full stop.

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>So lets do modern 1990s- 2010 analysis. High PE of 25 and low of 15 again combined with low inflation of 2% was the perfect recipe for economic boom. But whenever PE went above 30 it was a bubble. So Fed starts hiking again to stop people animal spirits behavior. PE came down to 25 and also inflation headed down.

OK, but let's not leave out that the tech bubble coincided with a major accounting firm scandal that required the creation of major corporate accounting legislation and questioned the entire concept of fundamental valuation and 2008 didn't happen expressly due to Fed tightening but rather due to an overextended housing market where all of the risk was sitting on bank balance sheets. In other words, the exact opposite of the situation we have now.

Basically, trying to tie all of this to Fed tightening is revisionist history at best. Again, we can't just ignore all the other context.

(Continued... Reddit's post length limits are small)