Herd Mentality

  • October 17, 2020
Herd mentality poses a danger at every turn here. While Wall Street seems excited about the possibility that the Federal Reserve may eventually drive rates to negative levels, passive investors should recognize that the Fed has already engineered negative rates – for the first time in U.S. history, including the 1929 top. Unfortunately, it’s in their portfolio, and they don’t realize it. Also: notes on public health, herd immunity, and containing COVID-19.
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Yikes

  • September 1, 2020
The most important observation about market valuations here is that while a decade of zero interest rate policy has encouraged yield-seeking speculation in stocks, the resulting extreme in stock market valuations has also driven likely 10-12 year S&P 500 nominal total returns below zero. Investors are not likely to find an alternative to hypervalued stocks and bonds in some undiscovered asset that they can passively hold instead. The alternative is patient, value-conscious discipline, flexible to changes in valuations, market internals, and other factors.
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Avoiding a Second Wave

  • July 30, 2020
The way to create a second wave of an epidemic is to relax containment practices while there is still a large pool of active, infective cases. In the financial markets, the immediate outlook remains negative, but we remain sensitive to any change in the uniformity of market internals.
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Fundamentally Unsound

  • July 12, 2020
My impression remains that the U.S. is still in the “incubation phase” of an economic and financial downturn that is likely to be far more disruptive than we’ve observed to-date. Meanwhile, our estimate of prospective 12-year returns on a conventional passive investment mix again matches the most negative levels in U.S. history.
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Incubation Phase: Gradually and then Suddenly

  • June 7, 2020
It’s sometimes said that “risk happens fast.” Yet underlying financial damage often has a long and quiet incubation phase, which is why Hemingway described bankruptcy as occurring “gradually and then suddenly.”
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Containing the Crisis

  • April 20, 2020
Containing this epidemic, and containing this economic downturn, both require a clear understanding of how the infection is transmitted, and how to blunt its impact.
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Navigating Turbulence

  • March 26, 2020
There’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What's needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.
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Clearing Rallies and Crashes (Buckle Up)

  • March 1, 2020
Presently, we continue to observe extreme valuations, coupled with ragged and divergent market internals. Yet we also observe very compressed short-term market action that has historically been permissive of “fast, furious” clearing rallies to relieve that compression. We are not “bullish” from a full-cycle perspective, and we continue to view safety nets as essential, but this compression does encourage us to have a more “two-sided” view about very near-term volatility.
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Make Good Choices!

  • February 24, 2020
The menu of investment choices for passive, long-term investors is now the worst in history. When speculation drives prices to hypervalued extremes and likely risk-premiums to zero - or worse - investors face an additional problem. A market crash is simply a low risk-premium spiking higher. That's not hyperbole, and it's not a market call. It's just a fact.
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