Insights

Inflation Expectations Are Running 2.5-2.9%

The Consumer Price Index climbed 7.0%, the biggest 12-month gain since 1982, when the US economy saw one of the worst spells of inflation in history. The CPI rose due to rising auto prices, clothing, home goods, and restaurant costs.  The supply constraints that have limited the availability of product inputs will be resolved.  No … Continue reading Inflation Expectations Are Running 2.5-2.9%

The Bizarro World of Speculation

Investors have "no choice" but to speculate when interest rates are zero. But, as Graham noted, speculating can be stupid in many ways. The first is speculating as investing.  Stocks may have "investment merit," "speculative merit," or neither. Investing discipline measures "investment merit" by valuation, the relationship between a security's price and the expected stream … Continue reading The Bizarro World of Speculation

Low Cash Levels Point to Extreme Bullishness

It is straightforward to evaluate if investors are more bullish or more pessimistic by analyzing the quantity of cash held relative to risk assets. Both professional and retail investors should be aware of this.  The higher the cash levels, the more bearish the market, and the lower the cash levels, the more bullish the market.  … Continue reading Low Cash Levels Point to Extreme Bullishness

Asset Allocation For All Markets 

Author: Terry Grennon This Do It Yourself eGuide provides: A way to manage your own asset allocation strategy including how to determine your asset mix and when to make changes. All requirements are supported with tools and guides depending on your interest and involvement.The research supporting the asset allocation strategy and on-going access to support. … Continue reading Asset Allocation For All Markets 

What Can We Expect From Here

The overall market is highly volatile and affected by generally long secular cycles.  Further, returns in the stock market depend upon the level of and trend of the inflation rate.  Current and recent levels for the P/E ratio suggest that expected returns will be disappointing for many investors.  The stock market has demonstrated longer-term secular … Continue reading What Can We Expect From Here

The Debt Markets Swiftly Get Ahead Of The Fed 

The Fed is still producing money and keeping interest rates around zero.  However, from late September to late December, the two-year Treasury yield climbed from roughly 0.23% to 0.73%. It is now 0.87%, the highest since February 2020.  Quantitative Tightening (QT) is the Fed's main anti-inflation policy tool and the Fed launched Standing Repo Facilities … Continue reading The Debt Markets Swiftly Get Ahead Of The Fed 

Does the Yield Curve Predict Recessions?

Real (inflation-adjusted) interest rates matter in economics.  The real interest rate forecasts the pace of consumption growth over time.  A high 1-year yield suggests strong growth. A high 10-year yield suggests a high 10-year growth rate. Growth should accelerate if the 10-year yield exceeds the 1-year yield.  Inverse real yield curves hinder growth.  This is … Continue reading Does the Yield Curve Predict Recessions?

The Yield Curve is Sending Out a Genuine Recessionary Warning 

The Bullish Case- Low interest rates justify high valuations and there is no alternative to stocks. The Bearish Case- We have the greatest two-year yield, highest three-year yield, and generally the highest five-year yield in the last year.  As a result, the yield curve is sending out a genuine recessionary warning.  You have interest rates … Continue reading The Yield Curve is Sending Out a Genuine Recessionary Warning 

40% of Nasdaq companies have lost more than half of their value since their highs

From April to December, the five most popular tech names accounted for 51 percent of all market gains, demonstrating the Nasdaq's and the broader market's narrow breadth.  According to Sundial Research, a near-record amount of tech stocks have fallen by more than 50%, a figure only surpassed by the March 2020 crash and the global … Continue reading 40% of Nasdaq companies have lost more than half of their value since their highs

Buffett’s go-to market yardstick is suggesting a high risk of a downturn

Warren Buffett's market gauge hit 211%, signaling stocks are too expensive. The Buffett indicator spiking is a "very strong warning signal," the investor said in 2001. Buying stocks when the gauge approaches 200% is “playing with fire," Buffett said. The "Buffett indicator" takes the combined market capitalization of all actively traded US stocks, and divides … Continue reading Buffett’s go-to market yardstick is suggesting a high risk of a downturn

Volatility as a factor

This analysis presents an uncanny relationship between stock market performance and the volatility of the market.  We do not assert a causal relationship; rather, the coexistence of the relationship implies that many measures of risk actually compound in declining markets.  By contrast, the reward-to-risk relationship improves significantly in strong markets. In the context of secular … Continue reading Volatility as a factor

It would be hilarious if it wasn’t so tragic

Few actually understand inflation.  Includes central bankers and financial analysts.  Fed Chair and Treasury Secretary Janet Yellen claims the Fed has no idea about inflation.  Yellen claims she and her colleagues may have underestimated the labor market's health, longer-run inflation expectations' consistency with our inflation goal, or even the basic mechanisms driving inflation.  "We have … Continue reading It would be hilarious if it wasn’t so tragic

The bullish extreme has only become even more intense in recent weeks

It has been proven throughout financial history that when the NYSE margin alert levels reach all-time highs, a bull market is reaching the end of its run.  The stock market peaks of 1987, 2000, and 2007 are notable examples of this phenomenon.  Traders' margin debt—the amount of money they have borrowed to acquire new shares … Continue reading The bullish extreme has only become even more intense in recent weeks

In retirement, why are bonds important? 

Investing in equity seems to be the focus of most asset allocation discussions. There are valid reasons for this: Equity accounts for the majority of capital gains that determine retirement sufficiency.  Fixed income plays a crucial role in the critical transition and retirement phases, which makes asset allocation a powerful retirement tool. Fixed income allows … Continue reading In retirement, why are bonds important? 

Interest rates will subside in 2022

Prior to the pandemic, concern about inflation seemed outmoded. But as the world economy recovered from covid-19’s terrible recession, the same problem resurfaced. Inflation climbed to 5% in the US and 3% in the UK, and much more in many emerging nations. Some experts predicted a recurrence of the 1970s’ high inflation. Things will get … Continue reading Interest rates will subside in 2022

While numerous factors can affect markets, the following are the three most significant market risks

Risk occurs when market participants have an abnormally high degree of confidence in a particular outcome that does not materialize. The risk arises from the market's disappointment with what was previously priced in. Investors will be taken aback by the market's repricing to reflect "reality." These risks are nothing more than the reversal of previously … Continue reading While numerous factors can affect markets, the following are the three most significant market risks

Why are so many investors on the WRONG SIDE OF THE MARKET when the market takes a significant turn?

Investors have been asking for ways to use leverage on the long side of the market for quite some time. In financial history, when NYSE margin debt levels reach all-time highs, it indicates that a bull market is reaching the end of its run. The stock market peaks of 1987, 2000, and 2007 are notable … Continue reading Why are so many investors on the WRONG SIDE OF THE MARKET when the market takes a significant turn?

The Everything Peak, Highest Valuations Ever

Source: Elliott Wave International This indicator with GDP, corporate sales, corporate earnings, and corporate value are all taken into account and adds up to a broad measure, but the timeline of this graph, which dates back to the year 1900, is also large scale. This indicator shows more than a century of equity valuations based … Continue reading The Everything Peak, Highest Valuations Ever

The Achilles Heal of the Bull Market

The risk to stocks is not the initial rate hike, nor the second or even the third. It is the point at which an increase in rates triggers a change in the economy, credit markets, or bullish psychology.  Second, rate-hiking campaigns have consistently resulted in unfavorable outcomes.  Additionally, the adverse effect occurred at consistently lower … Continue reading The Achilles Heal of the Bull Market

The Fallacy Of “Staying Invested Or Risk Missing The Move”

Because you can't time the market, Wall Street's traditional advice has been that investors should stay invested in stocks at all times in order to avoid missing out on potential returns.  If an investor does not participate in the market on certain days, he or she will underperform the market, according to a commonly cited … Continue reading The Fallacy Of “Staying Invested Or Risk Missing The Move”

The growth themes that are going to shape the future of investing 

This means that everything is becoming more and more smart, from buildings and grids to whole cities.  It's also important to look at how renewable energy, smart infrastructure, and new business models are changing the world.  In the case of renewable energy, the world is cutting back on making electricity from coal. It's because of … Continue reading The growth themes that are going to shape the future of investing 

The major risk to the global bond bubble

In the span of two years, the global government bond market grew from $10 trillion to $50 trillion in size. Interest rates are projected to rise as central banks take a step back and economies continue to recover. “Price-insensitive” investors’ role in lowering yields is at least bolstered by the weight of all that debt. In … Continue reading The major risk to the global bond bubble

The Key To The Long-Term Secular Direction Of Stock Prices

The Conference Board predicts that US economic growth will decrease from 5.5% in 2021 to 3.5% in 2022. S&P 500 EPS growth is expected to fall from 44% this year to 6% in ‘22. This leaves a lot of opportunity for the downside and almost none for the upside. According to the Bureau of Labor … Continue reading The Key To The Long-Term Secular Direction Of Stock Prices

A sign of a potential end to the 12+ year bull market

Financial history demonstrates that foreign investors typically increase their purchases of US stocks at the most inopportune time. For decades, significant foreign buying in the US stock market has been a reliable indicator of major tops. This also holds true for stock markets in other countries. For example, in the late 1980s, after years of … Continue reading A sign of a potential end to the 12+ year bull market

60% of US Growth Stocks Have Negative Earnings

Growth stocks in the United States have negative earnings in more than half of cases, although these stocks have outperformed considerably in recent years.  The economic climate is unique, the actors are unique, and the industries and firms that are caught up in the frenzy may also be distinct from one another.  Every single one … Continue reading 60% of US Growth Stocks Have Negative Earnings

A Secular Bear Is Not Out Of The Question

The divergence between the stock market and the rest of the economy is purely psychological. During the last decade, this has been especially true, as successive rounds of monetary intervention persuaded investors to "buy the dip.” While the association between economic activity and the rise and fall of stock prices has become less precise in … Continue reading A Secular Bear Is Not Out Of The Question

The commodities market smells deflation 

Source: Elliott Wave International Uncertainty is a market favorite. It’s why they exist in the first place. Business is what hates uncertainty. If you run an import/export business, for example, you need predictability in terms of rules and regulations, supply chains, and so on in order to plan your logistics. Companies have, of course, had … Continue reading The commodities market smells deflation 

Below the surface a bear market is taking hold

Japan's 1989 stock market fever could only be surpassed by today's US stock market craze.  QE and government deficit spending were vital, but the fake economic scenario was not as important in Japan as it has been in the United States.  Even at the 1929 peak, there was no quantitative easing, a far smaller government, … Continue reading Below the surface a bear market is taking hold

Inflation and then Deflation

The threat of "inflation" is dwarfed by the prospect of "deflation.”Central bankers' views on inflation were recently discussed in a Financial Times story. As the Financial Times observed, "pricing rises may become permanent for the first time in decades."  In 1954, the CPI Inflation rate was observed to have changed to deflationary. The rise of … Continue reading Inflation and then Deflation

There is no way the Federal Reserve is going to bail you out anytime soon

Financial crises have never been as severe as those that occurred in 2000. The stock market peaked in 1999, surpassing the highs of 1929 for the first time. As a result of this, the crowd was convinced that the rally would go on forever. The veterans were given preference over the newcomers. Some stocks saw … Continue reading There is no way the Federal Reserve is going to bail you out anytime soon

Let’s call crypto for what it is

Tether's crime spree has continued unchecked. It has been fined $41 million by the Commodity Futures Trading Commission (CFTC) for falsely representing that its holdings were completely insured by US dollars at all times. As part of the same order, Bitfinex was fined $1.5 million for "illegal, off-exchange retail commodities trades" and for violating the … Continue reading Let’s call crypto for what it is

The deflationary headwinds are strong and broad

If you take a look (below, first chart) at the participation rate by itself, you can see the 2020 peak was in February. Since the pandemic struck, the participation rate's "recovery" has barely made it halfway back to the level it was at prior to the pandemic. It has now stalled and is looking like … Continue reading The deflationary headwinds are strong and broad