Measuring The Bubble

Measuring the Bubble

  • January 28, 2018

I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say "... and this is where they completely lost their minds." As I’ve regularly noted in recent months, our immediate outlook is essentially flat neutral for practical purposes, though we’re partial to a layer of tail-risk hedges.

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When Speculation Has No Limits

When Speculation Has No Limits

  • January 15, 2018

Here we are, nearly three times the level at which I expect the S&P 500 to complete this cycle. Yet our immediate outlook remains neutral (though tail-risk hedges remain appropriate). It’s essential to distinguish between valuations, which have long-term implications, and market internals, which have implications for shorter segments of the market cycle.

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Survival Tactics For A Hypervalued Market

Survival Tactics for a Hypervalued Market

  • December 31, 2017

The essential survival tactic for a hypervalued market, and its resolution ahead, is to recognize that market valuations can experience breathtaking departures from historical norms for extended segments of the market cycle, so long as shorter-term conditions contribute to speculative psychology rather than risk-averse psychology. Yet those departures matter enormously for long-term returns.

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Navigating The Speculative Id Of Wall Street

Navigating the Speculative Id of Wall Street

  • December 1, 2017

Valuations are understood best not by trying to “justify” or dismiss current extremes, but by recognizing that across history, the speculative inclinations of investors have periodically allowed valuations to depart dramatically from appropriate norms, at least for limited segments of the complete market cycle.

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Brief Observations: Distinctions Matter

Brief Observations: Distinctions Matter

  • November 12, 2017

Last week, the uniformity of market internals shifted to an unfavorable condition. During the advancing half-cycle since 2009, zero interest rates encouraged speculation (and maintained favorable market internals) long after extreme overvalued, overbought, overbullish conditions emerged. But distinctions matter. Once the uniformity of market internals - the most reliable measure of speculation itself - is knocked away, those extremes are still likely to matter with a vengeance.

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This Time Is Different, But Not How Investors Imagine It Is Different

This Time Is Different, But Not How Investors Imagine It Is Different

  • November 4, 2017

Encouraged by the novelty of zero-interest rates, not even the most extreme “overvalued, overbought, overbullish” conditions have been enough to derail the speculative inclinations of investors. Yet in every other way, this speculative episode is simply a more extreme variant of others that have come before it.

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Why Market Valuations Are Not Justified By Low Interest Rates

Why Market Valuations are Not Justified By Low Interest Rates

  • October 9, 2017

Current market valuations are consistent with negative expected returns for the S&P 500 over the coming 10-12 years, with a likely market loss of more than -60% in the interim. The proposition that “lower interest rates justify higher valuations” has become a rather dangerous slogan, and is an incomplete statement.

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