The Fast and the Furious

  • December 26, 2018
While we don't presently observe conditions to look for a "buying opportunity" or a "bottom" from a cyclical standpoint, we do observe conditions that are permissive of a scorching market rebound, even if it only turns out to be the "fast, furious, prone to failure" variety.
Read More

Bubbles and Hot Potatoes

  • November 28, 2018
Quantitative easing wasn’t about creating more “liquidity,” or encouraging more bank loans, or any of the other excuses tossed around for it. What quantitative easing really did was to replace interest-bearing Treasury bonds held by the public with a mountain of zero-interest money that was so uncomfortable to hold that it drove investors absolutely crazy.
Read More

The Heart of the Matter

  • November 1, 2018
Valuations are informative about long-term returns and full-cycle risks. Market internals are informative about investor psychology over shorter segments of the cycle. Presently, neither valuations nor internals are favorable, and that is what opens up a trap door under the market.
Read More

Eternal Sunshine of the Spotless Mind

  • September 4, 2018
Current stock market capitalization is largely an artifact of speculative psychology, not reasonably discounted cash flows. Unless investors rely on eternal sunshine of the spotless mind – the assumption that current levels of extreme cyclical optimism will be permanent – they should not expect the associated valuation extremes to be permanent either.
Read More

Extrapolating Growth

  • July 25, 2018
Market returns and economic growth have underlying drivers. At their core, extended periods of extraordinary growth and disappointing collapse reflect large moves in those drivers from one extreme to another. Extrapolation becomes a very bad idea once those extremes are reached.
Read More

Mind the Trap Door

  • June 27, 2018
Even when extreme “overvalued, overbought, overbullish” warning signs are present, we now require explicit deterioration in market internals before adopting a negative market outlook. That, however, is far different than saying that extreme conditions can be ignored altogether. With market internals negative here, underlying market risks may be expressed abruptly, and with unexpected severity.
Read More

Hallmark of an Economic Ponzi Scheme

  • June 3, 2018
The hallmark of an economic Ponzi scheme is that the operation of the economy relies on the constant creation of low-grade debt in order to finance consumption and income shortfalls among some members of the economy, using the massive surpluses earned by other members of the economy. The factors most responsible for today’s lopsided prosperity are exactly the seeds from which the next crisis will spring.
Read More

Comfort is Not Your Friend

  • May 8, 2018
Strong investment opportunities are almost always born out of discomfort. Likewise, market collapses are almost always born out of confidence and euphoria. Markets peak when investors feel confidence about the economy, are impressed by recent market gains, and are comforted by the perception of safety and resilience that follows an extended market advance.
Read More

Risk-Aversion Meets a Hypervalued Market

  • April 6, 2018
Investment is about valuation. Speculation is about psychology. Both factors are unfavorable here. We’re observing the very early effects of risk-aversion in a hypervalued market. Based on the deterioration we’ve observed in our most reliable measures of market internals, investor preferences have subtly shifted toward risk-aversion, which opens up something of a trap-door.
Read More
Back To Top