Consumers can access 3 types of income
Assessing the health of an economy and predicting future consumption and economic growth potential, involves a comprehensive analysis of cycles and trends of savings, employment income, and credit.
Stocks don’t do good or bad; they do better or worse. Everything is relative to market expectations.
Investing in something just because it is cheap is likely a value trap.
Shorting something just because it is expensive is a death wish.
Markets and securities are often overbought or oversold, and they can maintain or extend those conditions for a long time. The outcomes that are more likely to happen may not happen until long after they first became likely. Markets can have a long time lags before turning around and reaching levels supported by a well-reasoned conclusion.
There are two famous quotes describing this:
Most of the big market moves can be separated into two pieces:
The investment grade (IG) market grew fivefold between 2006 and 2023, while the balance sheets of IG market makers shrunk during that period. This increased the sensitivity of credit spreads to liquidity.
During the same period, more liquid Fixed Income products, like treasuries and mortgages, have much smaller increases in volatility. This is because a higher fraction of market makers’ balance sheets is committed to providing liquidity in those assets. Market makers prefer those higher quality assets.