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Asking a Better Question

It's the wrong question to ask, "How can we somehow force internals to look like trend-following measures that aren't as reliable across history?" Happily, abandoning that question frees us to ask a better question. Once one accepts that internals are, in fact, behaving as intended, the question becomes: "How can we benefit during bearish conditions when valuations and internals validly hold us to a defensive outlook, yet obvious but less reliable trend-following measures remain favorable?" As John Dewey wrote, a problem well-stated is half-solved.
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Fed Pivots and Baby Aspirin

The key takeaway is that attending directly to market internals is actually more effective than attending to monetary easing or tightening. Still, given that we can expect a pivot toward lower rates in the near future, how much do valuations tend to increase, on average, in the 3, 6, 12, and 24 months following a Fed pivot? The answer is simple. They don’t.
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You’re Soaking in It

There’s a very rare set of market conditions extreme enough to deserve a ‘warning.’ As Madge said in the old Palmolive dish soap commercials, ‘you’re soaking in it.’
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You Can Ring My Bell

I may as well just say it. Based on the present combination of extreme valuations, unfavorable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week. Barring a wholesale shift in the quality of market internals, which are quickly going the wrong way, any further highs from these levels are likely to be minimal. In contrast, current valuation extremes imply potential downside risk for the S&P 500 on the order of 50-70% over the completion of this cycle.
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Skating By The Trap Door (Motherlode II)

There are certain features of valuation, investor psychology, and price behavior that tend to emerge when the fear of missing out becomes particularly extreme and the focus of speculation becomes particularly narrow. On Friday, May 24, we hit a fresh “motherlode” of these conditions.
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This Is Where You Start Bear Markets From

Statistically, the current set of market conditions looks more “like” a major bull market peak than any point in the past 75 years, and I suspect, any point other than the 1929 peak. As Jeremy Grantham recently observed, "This is where you start bear markets from."
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Universal Capitulation and No Margin of Safety

The stock market presently stands at valuation extremes matched only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929. Meanwhile, despite all the bluster about technological improvements driving durable increases in corporate profitability over time, the fact is that corporate profit margins before interest and taxes have hovered around the same level for 75 years.
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Speculative Euphoria and the Fear of Missing Out

Investors seem to be developing an excruciating and nearly frantic 'fear of missing out.' The intent of this note is to describe what we are doing – calmly and methodically, in our own discipline, to share the data surrounding those actions, and to remind investors how those actions will change as the data changes.
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Cluster of Woe

We estimate that current market conditions now “cluster” among the worst 0.1% instances in history – more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods.
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The Return of Buy-Low Sell-High

The S&P 500 is two years into what we expect to be a very long, interesting trip to nowhere. The strongest stock market returns in the coming decade, perhaps longer, are likely to emerge during advances in the S&P 500 that attempt to catch up with the cumulative return of risk-free Treasury bills. Recall that investors experienced the same outcome between 1929-1947, 1968-1985, and 2000-2013.
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