Headed For The Tail
The extreme “tail” risk ahead may be disorienting. While nothing in our discipline relies on valuations to retreat anywhere near their historical norms, we view a market loss on the order of -60% as likely. The February comment examines profit margins, interest rates, monetary policy, growth, and the composition of the S&P 500. All of these have been used as ways to “justify” today’s elevated valuations, and all of them are problematic.