First, SNAP:

SNAP closed on Tuesday at $32.07. It opened on Wednesday at $26, having fallen by 20% in overnight trading in sympathy, apparently, with FB. It traded down pretty steadily on high volume to $24.50-ish during the day. That’s another 5% decline (arguably peanuts in comparison with what other stocks are doing). It reported its own earnings after the close. They were good. The stock is trading at $36.50, up by 49% on extremely high volume, as I’m writing this.

If we go back a little farther, SNAP opened 2022 at about $47, having declined from an all-time high of $83 last September.

All in all, ex today, not a pretty picture.

Also, to be clear, I have no real idea about what’s going on with SNAP or with other stocks that are being battered this week. Black Monday in 1987 is the only time I can think of when prices moved so violently. And the economic backdrop back then was truly dire vs. not so bad today.

This all may just be AI run amok.

Having said that, what this also feels like to me is short sellers trying to trigger a final capitulation so they can close out positions. Yes, SNAP is not a particularly heavily short sold stock. But the bet against may be done with derivatives.

now FB:

I’m not a FB fan. I don’t know the company that well. I do use Facebook, especially Messenger, and Instagram, though. My overall take is that Mark Zuckerberg is the spiritual successor to Rupert Murdoch. But while Murdoch’s strategy was to gain political influence by riling up the right, Zuckerberg’s is to rile up any side he can. As we can see from Murdoch, Wall Street assigns a relatively low multiple to earnings achieved this way.

What I find most notable about FB this week is the obvious: its earnings report triggered a 25% decline in the stock price, on massive volume. In other words, the results seem to have been a complete shock.

My questions:

–where were the analysts covering the company? How did they miss stuff that was bad enough to take a quarter out of the stock price once it was reported?

–where was the company? At the very latest, as the quarter progressed, FB must have known that estimates were too high and that tried to reshape the Wall Street narrative away from the faster-than-analysts-thought maturing of the existing businesses to the idea that FB is on top of the situation and that cash flow is being reinvested into high-potential metaverse opportunities. Yes, stock weakness might have come earlier, but chances are the ultimate outcome would have been considerably better than how things played out by ignoring the investment community.

FB and PYPL, both major companies and well-known names, announced earnings–as usual, after the market close–over the past two days. Both stocks lost about a quarter of their value on the reports.

I don’t know either company well and I don’t think I’ve ever owned either, so my take on the news–that in both cases the results didn’t come as huge shockers–isn’t worth much.

What is important, I think, is that the extent of the declines calls into question my guess that the S&P and NASDAQ made significant lows late last week. If not for the markets as a whole, at least for the kinds of techy stocks the ARK funds might hold. Classic lows tend to be highly emotional things, in which stock holders give in to the despair that has been building in their minds as their losses grow and sell without regard to price simply to gain emotional release.

When something like this happens–when greed has fully transmuted itself into fear–there’s usually no energy left for the kind of selling in techy stocks that the price action of FB and PYPL have shown. All that would have happened last week. Rather, stocks usually rally for a few weeks before returning to “test” (as buckskin-jacketed market technicians would say) the previous lows.

In any event, this week’s price action in FB and stocks like it suggest that there may still be more pain to come in this part of the market.

I’m not a 100% Paul Krugman fan. But he did write something in the New York Times yesterday that I think is right, important and useful in understanding how we as investors should think about inflation. His take contrasts sharply with what I regard as the unfounded alarmism of many members of the financial press.

He makes two points:

–one is that University of Michigan, the daddy of domestic consumer surveys, finds that Americans expect that prices will rise by about 5% in 2022. But they think that inflation will decelerate next year to about 2.5% and remain at the 2.5% level for the following several years.

This contrasts sharply with the experience of the second half of the 1970s, when inflation played out as follows:

1976 +5.7%

1977 +6.5%

1978 +7.6%

1979 +11.3%

1980 +13.5%.

–the second is that although expectations for inflation in 2022 have risen over the past year from expecting prices to rise by just under 3% to 5%, expectations for 2023-26 have remained at about 2.5%.

As the Fed said over and over again in the 1980s, the ultra-high interest rate regime it adopted at the start of that decade–and the deep recession that they caused–were needed to change the belief ingrained in consumers’ minds during the macroeconomic malpractice of the 1970s that prices would continue to rise at an accelerating rate. This implied that, in Third World style, people should turn their paper money into tangibles like gold as fast as possible.

My guess is that people chastened by the object lesson of a closet full of hand sanitizer are not going to turn into tangible hoarders any time soon.

You’d think that reading about the 1970s inflation experience, or just looking at the inflation numbers from that decade, would stop fear-mongering in its tracks.

Another note: it seems to me that the domestic macroeconomic community realizes that its long-term goal of achieving stable inflation at a 2% level has been a big mistake. That’s because the Fed has found itself unable to move inflation above that level, or even to keep inflation from falling closer to zero. As the Great Depression of the 1930s taught, falling below the zero line has very bad consequences. So in a somewhat perverse sense, 5% inflation comes as a relief.

I’ve just updated my Keeping Score page for January 2022. Not so surprisingly, defensives and Energy have been the best performers in a down month.