Tuesday, December 15, 2020

Morning Note: Why Patience Right Here?

While we've made some notable sector shifts over the past few months (with more on the horizon) -- gaining a more cyclical, and international, tilt to the overall mix -- we've yet to reduce our target fixed income exposure. 

And for those of you who've recently either added capital to your existing portfolios, or are new clients to the firm, you've noticed that we're taking our time getting you to 100% of your personal target to our core portfolio.

Yes, the fact that we're getting more cyclical in our weightings means that we do see opportunities ahead -- amid still extreme macro and, call it, balance sheet, risk, mind you -- yet we have our concerns right here when it comes to timing the entry.

Allow me to bullet-point a few reasons why:

1. Our fear/greed barometer reads -50 (high greed): I.e., the market is hugely crowded to one side of the boat.

2. Ditto #1; the Citigroup euphoric-panic index is at 1.61: The highest euphoria reading in 21 years.

3. Portfolio managers are 2% cash. A record low!

4. Our latest technical analysis has the market beginning to look heavy.

5. While I'm not picking tops here -- just assessing risk -- my experience over the past 36 years has me sympathizing with Peter Atwater:

"As confidence rises we become increasingly optimistic about the future. And at the  top, everyone believes the best is still yet to come."

6. There's a massive amount of passive-fund quarterly rebalancing that's bringing a mountain of new supply (stocks being sold) to market between now and year-end. Whether or not the liquidity (the willingness) exists to gobble it up at present levels will be telling.

Asia had a rough one last night, with 13 of the 16 markets we track closing lower.

Europe's in a better mood this morning, with 14 of the 19 bourses we follow currently in the green.

U.S. major averages are higher to start the day: Dow up 52 points (0.17%), SP500 up 0.42%, Nasdaq up 0.64%, Russell 2000 up 0.66%.

The VIX (SP500 implied volatility) is down 4.33%. VXN (Nasdaq i.v.) is down 5.54%.

Oil futures are up 0.98%, gold's up 1.12%, silver's up 2.08%, copper futures are up 0.35% and the ag complex is up 0.32%.

The 10-year treasury is down (yield up) and the dollar's down 0.18%.

Led by silver, gold, utilities, tech and Eurozone equities, our core portfolio is up 0.42% to start the day. The laggards this morning are AT&T, base metals and energy producers (our energy services ETF, however, is up 0.72% this morning).

Requoting this -- which jibes with this morning's message -- by Howard Marks:  emphasis mine...

"...regardless of what’s going on with regard to the economy and company profits (that is, as the academics say, ceteris paribus or “all other things being equal”), the outlook for returns will be better when investors are depressed and fearful (and thus allow asset prices to fall) and worse when they’re euphoric and greedy (and drive prices upward)."

And this:

"...opportunities for investment gains improve when: the economy and company profits are more likely to swing upward than down, investor psychology is sober rather than buoyant, investors are conscious of risk or—even better—overly concerned about risk, and market prices haven’t moved too high."
Have a nice day!


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