A share of stock has two warranted prices. The first is based on fundamentals such as earnings and growth rates, whereas the second is rational in a way. The expectation of growth generates growth, which verifies the assumption; people will purchase it as a result of the increase. However, once you are certain that it … Continue reading Are Stocks In A Bubble?
Category: Asset Allocation
Investors Have More To Worry About
The start of "earnings season" is set for next week, which should help stocks. In the last few months, the cost of goods, labor, and benefits has gone up. There are now record corporate net profit margins and $5 trillion in stimulus, which means that fiscal liquidity-fueled demand will start to turn around soon. Second, … Continue reading Investors Have More To Worry About
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
Index ETFs a Ticking Time Bomb?
Index ETFs are much like a mirage, what we see on the surface hides much of what lies beneath. The illusion lies in the top 10 stocks vs the bottom 400. That illusion gets created by the largest market capitalization-weighted stocks having an outsized influence on the index. Specifically the top-10 stocks in the S&P … Continue reading Index ETFs a Ticking Time Bomb?
Peak Speculation – All Levered Up
In the the 1980's bond bubble, many companies issued bonds even though there was little ability to pay the interest expenses. Today, these "zombies” feed on cheap debt to stay alive. The market caps of these over leveraged firms is at a record. The obvious problem is what happens when they cannot refinance their debt. … Continue reading Peak Speculation – All Levered Up
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
The dilemma we face
The dilemma today is that we're at historically high P/E's. So there's little room for rising P/Es. The preceding secular bull ended (2000) with the market valuation (P/E) at levels twice as high as all previous secular bulls. We're in the early to mid stage of what historically has presented itself as a secular bear … Continue reading The dilemma we face
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
Anatomy of a Crash
When a financial asset bubble bursts, there are various elements that become apparent only after the asset bubble has burst. There are usually a slew of reasons why assets are not sold. The first is the general mood at the peak of the bubbles' height. Extreme optimism that additional advances are just around the corner … Continue reading Anatomy of a Crash
Bitcoin: Pros and Cons
The debate over Bitcoin - and the cryptocurrency craze it has spawned - runs the gamut from advocates who see it as the future of finance to skeptics who compare it to a classic pyramid scheme. The market capitalization of the crypto universe has increased from roughly $200 billion in 2019 to more than $2.2 … Continue reading Bitcoin: Pros and Cons
Protected: Asset Allocation with SPDR funds
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Protected: Asset Allocation with Vanguard
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Protected: Asset Allocation with Fidelity
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Protected: Asset Allocation with Schwab
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Protected: Asset Allocation with BlackRock
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Protected: Strategy
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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?
22 new technologies for 2022
Source: The Economist Science & Tech Correspondents Solar geoengineering It's so childish. If the globe is too hot, why not shade it? Volcanic dust and ash have been shown to chill the upper atmosphere: The 1991 Pinatubo eruption cooled the Earth by 0.5°C for four years. Solar geoengineering, or solar radiation control, does the same … Continue reading 22 new technologies for 2022
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
Developing Asset Allocation Models
If you think and act differently from the rest of the population, and you're more correct than they are, you'll be able to perform better than your peers. It’s difficult to predict the future when there is so much ambiguity. The greatest way to be a decision maker in this type of setting is not … Continue reading Developing Asset Allocation Models
A Bear Market … when?
During the previous three weeks, the market action has been brutal to trade in at best and nauseating at worst, making it difficult to stay focused. It seems like prices have been all over the place recently. The S&P 500 index, on the other hand, managed to maintain a reasonable level of stability, while the … Continue reading A Bear Market … when?
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
When the next bubble pops
Many investors believe that the financial crisis of 2008 was the one. When the stock market crashed in 2008, investment banks were also hit hard. The gigantic Bond bubble, which presently stands at more than $100 trillion, is the greatest financial bubble in history. The Tech Bubble, by comparison, was projected to be worth roughly … Continue reading When the next bubble pops
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
The facade of an economy
As the pandemic ravaged the economy, the Federal Reserve, White House and Congress built a facade economy around the ailing economy. In the long run, it is sustainable economic growth that supports asset prices, but in the short run, investors may continue to be mesmerized by the illusion of a booming economy. As a percentage … Continue reading The facade of an economy
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
Terry Grennon 