Market Themes And The Inertia Selloff

Andrew Walker introduces agentic AI, Muse, consumer-inertia stocks, and rising interest rates as the episode’s two dominant market stories.

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Episode notes

The 10 year has gone from 4.2% at the start of the year to 4.6% in late August to 5.1% today, and the S&P is still basically touching all time highs. Interest rates are financial gravity, but I wonder if gravity works on a lag. Consumers and allocators are slow to move money from stocks to bonds, and corporates termed out a lot of 3.5% debt in 2021 to 2023 that starts rolling in 2028 to 2031. Today's free cash flow is flattered by that spread. Underneath the index there is already real pain in housing, levered small caps and biotech, and my bottom line is the margin of safety in stocks keeps getting skinnier.

From there: why merger arb spreads that looked juicy to anyone who came of age in ZIRP are just the time value of money at 5%, and where the crashes and long bear markets went. We have gone from 1929, 1987 and 1972 to 1974 to a nine month GFC, a two month COVID drawdown and a tariff tantrum that lasted weeks. Is that a stronger market, or a more fragile one waiting for one big break?

Then a friend's line that every investor is either overconfident or has imposter syndrome. I am firmly in the imposter camp, which is a problem, because almost every great investor I can name reads as overconfident. Survivorship explains a lot of it: we don't see the overconfident coin flippers who zeroed out, and Archegos is the cautionary tale. I close on mentorship, sparked by Ian Cassel's book Stock Picker and his mentor Skip, and why everyone, Buffett included with Ben Graham, eventually outgrows their mentor.

Today's post on Muse and the inertia sell off: https://www.yetanothervalueblog.com/p/musings-on-muse-the-inertia-sell

My episode with Ian Cassel on Stock Picker: https://www.yetanothervalueblog.com/p/ian-cassel-on-stock-picker-the-book

Last month's rates piece: https://www.yetanothervalueblog.com/p/rates-are-screaming-and-stocks-arent

This episode is sponsored by Fiscal.ai: https://fiscal.ai/yav. I'm a paying customer and I connect to Fiscal through its API. Two things I use it for: a huge database of fund letters I can pull up on any name I'm researching, and audited financials where every number in the model links back to the source. Use my link for 15% off their AI connector.

Chapters:

(00:00) What I'm rambling about this month

(01:57) Sponsor: Fiscal.ai

(03:30) Two stories: Muse and rates

(04:24) Interest rates are financial gravity

(07:35) Does gravity work on a lag? The coming debt refi wave

(09:17) Index highs, pain underneath: housing, small caps, biotech

(11:23) Rates and special situations: merger arb isn't free money anymore

(14:22) Where did the crashes and long bear markets go?

(18:11) Fed put, fragility, and one big break

(19:55) Overconfident investors vs imposter syndrome

(23:20) Survivorship: Archegos and Situational Awareness