Opinion (180)

1. The Worst of Times:  In hindsight, it was never going to end well when both stocks AND bonds were trading at crazy expensive levels. It is the worse case scenario for traditional passive buy and hold portfolios.

Source:  Dr. Timo Teuber


2. Max Pain:  Passive buy and hold + stocks and bonds down = portfolio pain. And it is showing up clearly in Google Trends data on searches for "why is 401k down".

Source:  @Callum_Thomas Google Trends


3. Extreme Valuation Swinging:  We’ve just witnessed an extremely rapid and substantial contraction in P/E multiples (which follows a previous extremely rapid and substantial expansion!). The question many will ask: "is it cheap yet?"

Source:  @keyeventrisk


4. Is it Cheap Yet?  In terms of levels, even though the US PE10 ratio has come down sharply, it is still some way off the bottoms seen in 2016/18/20. So I would say no, it is not cheap yet: not expensive anymore, but not cheap.

Even the rest of world is still not far off the top of the range of recent his

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Not Expensive But Not Cheap Yet

Global vs US PE10 Valuations:  One of the most interesting aspects of the past decade has been the divergence in valuations between the USA and the rest of the world. A big part of the divergence in price/value has been driven by a massive divergence in relative earnings performance, with the US significantly and consistently outperforming the rest of the world in earnings growth…

But while the US has outperformed rest of world in earnings over the past decade, arguably this is already in the price and then some. 

US PE10 valuations (i.e. price divided by trailing 10-year average earnings) are about double that of the rest of the world, and the breadth of overvaluation shows that it is a widespread issue (more than 90% of countries are at least 20% cheaper than the US by our calculations).  One thing to note on this too is that such valuation gaps can partially close by the expensive one simply “catching down” or correcting further/faster than the other… and that seems to be happening as

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Are we officially in the process of being caught off guard?

 

I wasn’t even going to write a note this morning, because it’s Sunday and I have a couple pieces planned for the week to come. But then I had an interesting set of realizations this morning while walking to get my coffee:

  1. Many young people on Wall Street nowadays have never experienced real volatility in markets

  2. Russia’s invasion of Ukraine and inflation at 7.5% in the U.S. are two extremely different, complex and unmapped pieces of terrain that we are going to be forced to navigate

In other words, we have a ton of inexperienced market participants that should be bracing for the economic shock of their lifetimes, but they’re not - they’re still at the stage where walking around Manhattan in Patagonia vests, drinking Starbucks and making dinner reservations at whatever douche-motel is trendy this week are among their top concerns.

This wasn’t a big deal when I first pointed out in November that I thought the NASDAQ could crash. We

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Admin

Bitcoins Crash vs. The Past

8969455067?profile=RESIZE_710xBitcoin’s Latest Crash: Not the First, Not the Last

While bitcoin has been one of the world’s best performing assets over the past 10 years, the cryptocurrency has had its fair share of volatility and price corrections.

Using data from CoinMarketCap, this graphic looks at bitcoin’s historical price corrections from all-time highs.

With bitcoin already down ~15% from its all-time high, Elon Musk’s tweet announcing Tesla would stop accepting bitcoin for purchases helped send the cryptocurrency down more than 50% from the top, dipping into the $30,000 price area.

“Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
@Elonmusk

Crypto Cycle Top or Bull Run Pullback?

It’s far too early to draw any conclusions from bitcoin’s latest drop despite 30-40% pullbacks being common pit stops across bitcoin’s various bull runs.

While this d

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Admin

From the bottom in late March of last year, the U.S. stock market was up nearly 75%. This was the best 12 month return ever recorded since 1950.

Nearly 96% of stocks in the overall U.S. stock market showed positive returns in that time.

It’s highly like we will never experience a 12 month period of returns like that again in our lifetime. For all intents and purposes, the one year period following the bottom of the Corona Crash was the easiest environment in history to make money in the stock market.

If you think this type of market is normal, you’re sorely mistaken. It’s not always going to be this easy.

In fact, the stock market has already stopped being so easy in 2021. While the S&P 500 just hit its 26th new all-time high this year alone (including another new high at the close on Friday), a number of stocks are currently getting crushed.

And it’s not just any stocks; it’s many of the stocks retail investors flocked to last year following the crash:

PENN_ZM_TDOC_PTON_SNOW_DASH_SPCE_SPOT_ROKU_chart.pnghttps://awealthofcommonsense.com

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Admin

For those who have not followed David Einhorn's crusade against central bank money printing, and the epic bubble these cluless academic hacks have created, his views on the "enormous tech bubble" we are currently living through and published in his latest letter to investors of his Greenlight hedge fund (which returned 5.9% in Q3) will provide some unique perspective.

To everyone else who is familiar with how his fund has been hammered by his tech short basket - and especially Tesla - over the years as the most overvalued tech stocks in history continued to rip higher year after year, we doubt his latest thoughts will come as a surprise, although his observations on the endgame are certainly remarkable, if for no other reason that he now declared the time of death of said "enormous tech bubble" as Sept 2, 2020.

Bubbles tend to topple under their own weight. Everybody is in. The last short has covered. The last buyer has bought (or bought massive amounts of weekly calls). The decline s

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Admin

2020 Concensus Predictions

The Iran conflict notwithstanding, Mr. Market will do it's best to reassure you that everything will be fine.  Only time will tell but I personally, would not want to enter any new positions here unless you're a daytrader.  Not at 20x forward earnings already baked in.  Watch the next plank of earning reports.  Hedge if you are long any name...........except gold that is.  I have a target of $1700 in a wave five count before a correction.

3801318685?profile=RESIZE_710x 

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Admin

The idea that we are late in the economic and financial-market cycle is one that even most Wall Street bulls won’t dispute.

 

After all, when the economic expansion surpasses a decade to become the longest ever and the S&P 500 has delivered a compounded return of nearly 18% a year since March 2009, how can the cycle not be considered pretty mature?

Yet it’s not quite that simple. Huge parts of the economy have run out of sync, at separate speeds. Some indicators have a decidedly “good as it gets” look, others retain a mid-cycle profile — and a few even resemble early parts of a recovery than the end. Friday’s unexpectedly strong November job gain above 200,000 reflects this debate, suggesting we are not at “full employment” even this deep into an expansion.

And the market itself has stalled and retrenched several times along the way, keeping risk appetites tethered and purging or preventing excesses.

In the “late-cycle” category we find several broad, trending data readings: Unemploym

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Admin
https%3A%2F%2Fmaven.io%2Fapi%2Fuser%2FzmfATcSa4EegwR7v_znq6Q%2Fphoto%3Fversion%3D0https://imageproxy.themaven.net/https%3A%2F%2Fmaven.io%2Fapi%2Fuser%2FzmfATcSa4EegwR7v_znq6Q%2Fphoto%3Fversion%3D0?w=48&q=30&h=48&auto=format&fit=crop&crop=fo

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Admin

Yield Curve Inversion We're All Watching

Whether you're watching CNBC, Twitter or another news outlet, you're hearing a great deal of talk about the odds increasing that the Fed will drop rates soon.  Everyone's cheering it on..........yet no one's talking about recession possibilities.  Don't say 'recession' on live tv!  Keep that notion out of your head!  At least I believe that's what Trump is thinking as he warms up for his 2020 campaign.  He wants the market "up, up, up".  A strong stock market with plenty of green and profits in your pocket.  If it fails after 2020, so be it.  At least he'll have his re-election and be further away from any prosecutorial attacks for four more years.  If he loses, blame it all on the Democrats!

In the meantime our yield curve continues to invert, or decay if you see it that way; implying a rough road ahead for the U.S. as China and European countries slowing low and behold, the U.S. having a "global market", the U.S. looks to be slowing as well.  Shocker!

Now the US housing market is slo

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Admin

Bull Trap?

The bulls are back. $SPX up nearly 8% in January and nearly 14% off of the December lows. What slowing global growth? What reduced earnings expectations? Trade wars? Who cares. It’ll all sort itself out, all that matters was the Fed caving in spectacular fashion laying the foundation for the big bull case. The central bank 2 step is back: Dovish + dovish = nothing but higher prices. The lows are in, what else can I buy? This pretty much sums up current sentiment.

And so goes the familiar script during emerging bear markets, a general sense of relief that the lows are in and a return of optimism and greed after an aggressive counter rally following an initial scary drop. Long forgotten are the December lows after a torrent consecutive 6 weeks of higher prices.

While indeed a renewed fully dovish Fed may be all that’s needed to keep 2019 bullish (after all this playbook has worked for the past 10 years) there is evidence that this rally may turn out to be a big fat bull trap.

And it’s no

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Admin

With the SPX up ~8% in just the last month, increasingly nervous investors who still vividly recall the freefall days of December 2018, are wondering what will stop the unrelenting rally according to JPMorgan's Adam Crisafulli who writes this morning that while there are always risks, none of the (known) ones seem particularly threatening at the moment.

Still, according to the JPM strategist, investors should be wary about chasing the SPX above 16x (i.e. above ~2750) but the index is more likely to touch 16.5x (>2800) than it is to hit 15x (<2600) based on everything known right now.

With that modestly bullish bias in mind, Crisafulli lists 14 things that can go wrong and send stocks sliding once more.

  1. TSYs and the USD fail to ratify the Fed optimism – at some point the TSY curve needs to steepen and the USD has to weaken in order to confirm the dovish takeaways from the recent Fed decision.  If TSY yields fall across the board (or even worse, if the curve flattens) and/or the USD sta

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Admin

U.S. stocks experienced their third straight week of gains, with the S&P 500 Index rising 2.6% and gaining more than 10% since Christmas Day.1 Investors were encouraged by comments from the Federal Reserve indicating a less aggressive policy stance and a sense that trade issues may be improving. Strong outflows from stock funds have also been an important contrarian indicator that investor capitulation had reached a limit. Several market areas were standout performers last week, including industrials, retail sectors, technology and energy, which was helped by a 7.5% climb in oil prices.1 A near -term consolidation is possible, given the strong climb over the last few weeks, but a return to December’s lows seems unlikely.

 

1. The Fed should remain data dependent, which should be good for stocks. Fed comments in October seemed to indicate it would continue to raise rates and sell off its balance sheet for the foreseeable future. But Fed Chair Jerome Powell walked back those comments in

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Admin

Macro And Credit - Buckling

Watching with interest the slowly grind higher in US interest rates with some weakening signs coming from US economic data such as the US trade deficit in goods getting spanked with orders for larger domestic appliances and other durable goods falling by a cool 3.7% from the month before, led by a hard drop in vehicle demand, when it came to choosing our title analogy for this week's conversation we reminded ourselves of "buckling" being a mathematical instability that leads to a failure mode. When a structure is subjected to compressive stress, buckling may occur. Buckling is characterized by a sudden sideways deflection of a structural member. This may occur even though the stresses that develop in the structure are well below those needed to cause failure of the material of which the structure is composed. As an applied load is increased (US interest rate hikes) on a member, such as a column, it will ultimately become large enough to cause the member to become unstable and it is sai

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Admin

There is no shortage of cognitive biases out there that can trip up our brains.

By the last count, there are 188 types of these fallible mental shortcuts in existence, and they constantly impede our ability to make the best decisions about our careers, our relationships, and for building wealth over time.

Biases That Plague Investors

In today’s infographic from StocksToTrade, we dive deeper into five of these cognitive biases – specifically the ones that really seem to throw investors and traders for a loop.

Next time you are about to make a major investing decision, make sure you double-check this list!

cognitive-biases-trading.png
Courtesy of: Visual Capitalist

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Admin

Will Credit Cause A Slowdown

Saxo Bank thinks a slowdown in credit growth is bad news

20170909_BLP518.jpg?width=500

IF THERE is a consensus at the moment, it is that the global economy is finally managing a synchronised recovery. The purchasing managers' index for global manufacturing is at its highest level for six years; copper, the metal often seen as the most sensitive to global conditions, is up by a quarter since May

20170916_woc638_0.png?width=450But Steen Jakobsen of Saxo Bank thinks this strength will not last. His leading indicator is a measure of the change in private sector credit growth. This peaked at the turn of the year and is now heading down sharply. Indeed the change in trend is the most negative since the financial crisis (see chart). Since this indicator leads the economy by 9-12 months, that suggests a significant economic slowdown either late this year or early  in 2018. He says that

This call for a significant slowdown coincides with several facts: the ECB’s QE programme will conclude by end-2017 and will at best be scaled down by €10 billion per

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