WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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THE BEST BUSINESS IS MINDING YOUR OWN BUSINESS…

It was a busy week on Wall Street. Jerome Powell’s Fed lowered the Fed funds interest rate by 25 basis points. The market exhaled and went back to business as usual.

 What was more telling was how the dot plots voted.

• Six officials projected a year-end 2025 target range of 4.00%–4.25%, which suggests no more rate cuts.

• Nine officials projected a lower range of 3.50%–3.75%. This translates to 47% of the Dots expecting at least two 25 basis points by year-end.

• One official dissented, voting for a larger 50-basis-point cut and projecting an even lower 2.75%–3.00% target range by year-end.

 And we all know who the lone dissenter represents.

Quadruple witching went off without a hitch, and the volatility was at a minimum, most likely stymied by the reality of a most welcome easing cycle.

The months are not over yet, with the last trading day of the month being Tuesday, the 30th, which means there could be some last-minute volatility leading into the infamous month of October.

October has a mixed historical reputation for the stock market. Traditionally, it is known as a volatile month with several of the largest crashes in market history, such as the 1929 Black Tuesday and the 1987 Black Monday, occurring during October. This reputation is sometimes called the “October Effect”.

There is sure to be plenty of window dressing where fund managers or companies alter their portfolio holdings or financial reports near the end of a reporting period (such as a quarter or fiscal year) to create a more attractive appearance for investors. For example, fund managers might sell poorly performing stocks and buy high-performing ones just before reporting to make it look like the portfolio has performed better than it actually has.

This practice is intended to impress investors by showing a stronger portfolio and better returns, potentially attracting new investments or retaining current investors.

It can involve selling losing positions and showcasing winning stocks, even if those winning stocks were not held during most of the reporting period. Although it may not be illegal, window dressing is viewed as unethical since it can mislead investors about the true performance of the fund or company.

Window dressing can cause short-term distortions in stock prices as funds reposition holdings, this is why the long term is undefeated, when you are long term you avoid being misled by this tactic.

Speaking of tactics, President Trump played power broker in the UK signing a landmark Technology Prosperity Deal with the UK, securing massive American investment commitments, as well as agreeing to major collaborations in artificial intelligence, nuclear energy, and quantum computing.

The rhetoric on the street switched to watching the long end of the yield curve. So everyone will keep their eyes peeled on the 30-year treasury for any signs of inflation.

Long-term yields (such as on 10- or 30-year Treasuries) capture market expectations about inflation over many year. If investors anticipate higher inflation, they demand higher yields to compensate for future purchasing power erosion

Higher yields have a direct impact on mortgage rates, causing rates to go up in direct contradiction to the Fed's lowering interest rates.

In the short term, eyes will be peeled for any signs of benign inflation, so a rare twist of fate, the street has now become more days dependent than the Fed.

Disney decided to take a political stance against host Jimmy Kimmel, suspending his show indefinitely and watching its stock tumble to the tune of approximately 3.87 billion overnight.

To add insult to injury, people are calling for a boycott while many canceled their Disney and Hulu subscriptions, now that’s what I call crowd e-funding…I guess the best business is minding your own business.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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SINCE WHEN DID COLLUSION BECOME THE CROWED TRADE?…

Is it ironic how Wall Street rallies around the old stalwart companies when they do something extraordinary in the normal course of business? Aren’t they supposed to grow and adapt?

Very often, the street gives companies that live in this space, such as Dell, Broadcom, and the INTC of the world, way too much credit.

If you go into each and every one of these companies, they have gone through a period of either failed leadership and stagnant growth or both. But the minute there is a glimmer of hope, the street runs companies that fit into these profiles past the point of comprehension.

They did it with Dell last year, and they are doing it with ORCL this year.

It’s almost like they are starving for liquid ideas and need to put some capital to work so they deploy it where it can escape suspicion. It’s like the old Wall Street proverb, “You Can Get Fired For Buying Apple.”

Originally, IBM held this distinction because these companies in their respective time periods were viewed as safe havens.

And very often, if a fund manager didn’t own these companies, it led to underperformance and embarrassment. Today, it’s not about embarrassment or getting caught with your pants down; it’s more about hiding in plain sight.

It’s like a brilliant game of collusion disguised as the crowded trade with a sprinkle of front running, secret handshakes, and silent agreement.

At this point, you should be hearing Ludacris hit song ring in the back of your head— “when I move you move”— it’s just like that, because it feels like a concentrated effort when you run a company five years before their schedule projected revenue growth or on the thought that they will be the main supplier for the biggest widget company.

This is what bubbles are made of, in my opinion.

Wall Street very often skates in the gray area, and what better gray area than the scarlet letter A for Alpha, dressed in a grey pinstriped suit. You see, there are very few distinctions between the illegalities of collusion and the crowded trade.

A crowded trade is defined as when many investors or institutions pile into the same position or strategy, often based on similar research, signals, or momentum.

But on the other hand, collusion is an intentional secret, and usually illegal agreement among market participants to manipulate prices, restrict competition, or gain unfair advantage, such as price-fixing or coordinated market moves.

Well, if you take out the secret agreement and replace it with a beefed-up research report, doesn’t the coordinated move by institutions with billions of dollars give them an unfair advantage?

It’s truly a difference of semantics, but on Wall Street, this is an unspoken way of life.

They just disguise it beneath the colorful sayings and displaced blame, like the bond market knows before the stock market—this is based on the barometer of yields

For instance, the narrative states that because of the inflationary picture in the economy, the long bond or 30-year bond yields may rise due to the uncertainty that exist in the economy surrounding inflation.

So, if we see a rising 30-year in the face of an easing cycle, this tells us that there is a concern that inflation is not a matter of if, but when. So, the question remains how—can the perceived narrative dictate moves and cause “crowded trades?”

To understand the nature of the manipulation you have first figured out what sector stands to benefit from an inflationary environment.

If you guessed banks, you are correct.

Banks and financial institutions benefit as rising inflation usually leads to higher interest rates, improving their net interest margins and profitability.

And in this environment, utilities benefit as well.

A utility company may be able to increase rates with inflation and offer relative stability, though returns are generally modest, and if you add in the AI electrification story, you have perfect candidates for the crowded trade.

Think about it…who is going to get fired or called out for buying financials and utilities? Absolutely no one. But when you look back, do you remember when Vistra Corp and Constellation energy were the AI darlings?

Who’s going to question a utility that pays a dividend, especially when buying companies with dividends is considered the most prudent trade on Wall Street?

But if you looked at the performance of Vistra:

• 2023 up 49.18%

• 2024 up 265%

• 2025 up 89%

If this is not a crowded trade, then what is?

The point is just because the short-term performance looks good and it’s green, it doesn’t mean the long-term fundamentals or the C-suite is in a position to deliver results over a 10 or 20-year period. So be careful, I have seen these scenarios return to earth just as fast as they took off…

WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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Quick Links…

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The Rich Get Richer…

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Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report