Thursday, April 15, 2021

Morning Note: "Abnormal Is Normal"

To get a feel for how confused markets are these days, consider this morning:

Retail sales, two important regional manufacturing surveys, and jobless claims were released and, suffice to say, retail sales and manufacturing knocked it out of the park. Initial jobless claims even, while still an ominous 576k, were a net positive -- as expectations were for 700k. The financial space (BofA, Citi, Wells and Blackrock) saw a slew of earnings releases that all destroyed expectations...

Wednesday, April 14, 2021

This Week's Message: Thinking Outside the Crowd

In the portfolio management world the term "short volatility" means essentially positioning in a manner that benefits from a low-volatility/rising asset price environment. 

A portfolio that is "short volatility" typically enjoys extended periods of nice, incrementally (barring the occasional hiccup) positive returns, with periodic bouts of large surprise shocks that tend to wipe out literally years of those nice, incremental gains... A simple buy and hold stock portfolio would, technically-speaking, be your classic example...

A “long volatility” hedging strategy, in contrast, is one where small ongoing costs are incurred, with periodic bouts of large surprise shocks, when outsized gains on the hedge are realized. I.e., it’s akin to paying insurance premiums in order to mitigate huge losses during those surprise shocks.

Our busy graph below (translation to follow) plots the past 60 years of action in the S&P 500 Index. The red arrows illustrate the number of years' worth of gains the 4 major bear markets of the era ultimately took back. The green arrows (in the 73/74 and the '00-'03/'07-'09 episodes) denote how many years it took to sustainably recapture the pre-bear market all time high. 

Note: The recovery from last year's selloff was too quick to allow me to squeeze in a green arrow, and of course it may yet be premature to label the recapture "sustainable."

'73/74 bear market: Drawdown, -48%. Years of gains lost, 11.5. Years to recapture prior peak, 10.6.

'00-'03 bear market: Drawdown, -51%. Years of gains lost, 5.4. Years to recapture prior peak, 12.9.

'07-'09 bear market: Drawdown, -57%. Years of gains lost, 12.4. Years to recapture prior peak, 5.5.

'20 bear market: Drawdown, -35%. Years of gains lost, 3.4 years. Years Months to recapture prior peak, 6.

Observations: The historically-brief periods separating the 3 most recent major (-30+%) declines speak to the herculean efforts of the powers that be. I.e., efforts that, intentions notwithstanding, served to arrest what would've otherwise turned out to be true market clearing (healthy) events. 

In not allowing the markets to purge all of the excesses of prior expansions, subsequent expansions forever begin in somewhat (albeit subtly) constrained fashion, requiring what amounts to the Fed maintaining easy monetary conditions in virtual perpetuity (read forever inflating bubbles)...

Thus, presently, low interest rates notwithstanding, equity market valuations remain at all-time highs and the debt concerns we've expressed ad nauseam herein have only been exacerbated (in terms of degree) exponentially! 

I.e., last year's selloff accomplished zero by way of healthy market clearing.

Hence, our inclusion of non-correlated (to U.S. stocks) asset classes into our core portfolio mix, increasing our global equities exposures, and our active "pure" hedging of major downside risk via options

Listening to an interview Monday evening with economist Jens Nordvig; he made the ultimate point with regard to the present macro setup, and, I'll add, what has U.S. equity market valuations remaining, for the time being, at all time highs:   

emphasis mine...
"It's just very hard to find historical examples of a cycle that looks like this one. We can obviously go back to the previous big pandemics and think about how they played out, but the policy responses were totally different."

"...certainly on the stimulus front in the U.S.. We're just talking about totally unprecedented numbers. Even the numbers we've already achieved are unprecedented, at least all the way back to the second world war. And we're already talking about the next round. We're just getting the last round signed and we're already on to the next one."

If you're new to our firm, say, within the past 2 years, it would be entirely understanding for you to surmise that we are inherently risk-averse. If, on the other hand, like most of you (clients), you've been with us throughout a market cycle or two, you know that there's nothing inherent about our presently cautious approach to U.S equities. 

In fact, during what was, at the time, the most volatile year of the longest bull market in history, 2018, we maintained our bullish posture throughout. It wasn't until late-summer 2019 that our assessment changed -- due to general conditions at the time -- and we became "cautious" with the regard to the risk/reward setup for the U.S. equity market.

Here's a 5-year graph of the S&P 500; the green box captures January 1, 2018 to August 2019, the yellow box captures everything since:

Note my notations -- pointing out our bent throughout the two periods. 

To get a feel for why we remained sanguine (maintaining the bullish posture we adopted back in early 2009) during the depths of the near-20% selloff in Q4 of 2018, here are a few snippets from our weekly message on 12/21 of that year:

"We are forever in search of the signs and signals that say "warning! Recession ahead!" As, typically, bear markets are things of recessions.

So how do we do that? We do that by testing the data that matter against the periods that led up to past recessions. And as we perform that function here today, the character of the data on balance (per our proprietary macro index) does not yet signal recession, and remains notably more positive than it was during the whopping 2011 correction, and slightly better than the 12+% draw down of early 2016, yet somewhat worse than conditions during the 2015 correction."

"Here's a small sampling of the data we track (shaded areas are recessions, I circled the areas around the 2011 correction and the back-to-back corrections of 2015 and 2016). I of course cherry-picked examples that emphasize my point, and those that most folks are familiar with and/or can relate to:"

"As you no doubt noted in the above, as it relates to the featured charts, present conditions do not remotely resemble recessions past, or even the 2011 and 2016 market corrections."

"History suggests that this -- a correction amid an ongoing economic expansion -- is the stuff strong rallies are made of."

Now let's fast forward to our September 1, 2019 blog post to get a feel for the state of general conditions a mere 9 months later:

"As we've been discussing and illustrating herein, we see real under-the-surface cracks forming in the macro economic setup. All the while there's this popular (in some circles) narrative that those of us expressing such concerns run the risk of talking the economy into recession.
Hmm... well, sure, sentiment is huge when it comes to the economy, but I can think nothing more dangerous/irresponsible for an investor or money manager to do than to pretend everything's perfectly okay, when clearly it isn't. We must see things as they are, and act accordingly.

Speaking of "seeing things as they are", here's our charting of some of the data points that currently weigh on the Economic and Financial Stress subindexes within our proprietary macro index -- which just came in below zero (heightened recession risk) for the 5th consecutive week:"

Click here to view the charts referenced... 

Okay, so skimming through past commentaries it occurs to me that I could do this all day, so I won't. Suffice to say that the evidence was sufficient to demand that -- after remaining unwaveringly bullish for the 10 previous years -- we begin hedging portfolios as of late-August 2019... Then, by December of that year, and incrementally since, we've been managing, via sector and asset class shifts, to a position mix that has us less correlated to the U.S. equity market, while taking advantage of the money printing and interest rate suppression that the powers that be are aggressively resorting to in order to keep modern history's most ominous debt bubble afloat for as long as humanly possible. 

Currently, that overall target mix consists of 18% cash and short-term fixed income securities, 24% currencies and commodities, 19% developed market foreign equities, 10% emerging market equities and 29% U.S. equities (bias toward materials, energy, green energy, financials and industrials).

Now, back to that last graph above...

Here we'll fold in the aggregated earnings per share (orange) for the S&P 500 Index. Note how it was topping out as our macro assessment instructed us to begin hedging, and how it has literally plunged since:

Well, I suppose we could say that we were prescient in our analysis. But, then again, unforeseen COVID showed up...

Well, sure -- prescience and COVID notwithstanding -- but look at the blue line (the S&P itself)... It literally screamed higher, while what would be the definition of the underlying fundamentals (corporate earnings) screamed epic bear market ahead!

So, how unusual is it to see stocks "scream higher", for any extended period of time, while earnings are epically rolling over?

Let's take a 30-year look:

Answer: Very!

For good measure, and to further illustrate how unusual the present setup is (in terms of the price action in stocks), let's fold in the recessions that occurred during those 30 years:

Of course what's happening here is the stock market discounting an absolute explosion upward in corporate earnings going forward — literally back to pre-covid levels... 

That's a very tall order that, in my opinion, is simply not doable without steady, ongoing fiscal injections that, per the Nordvig quote above, are already beyond virtually anything we've ever seen...

Therefore, make no mistake -- given the enormity of present-day asset (and debt) bubbles -- steady, ongoing fiscal injections we are indeed going to see. 

The question for us, on our clients' behalf, is, do we chase what everyone else seems so comfortable -- we presume based on the prospects for perpetual stimulus -- chasing? Or do we think deeper and catch the areas that are more fundamentally (positively) impacted by dollar debasement and interest rate suppression, while combing the world for other relative value plays?

We do the latter of course...

To expand on our recent charting of U.S. vs foreign equities (speaking of “combing the world”) let's break down their respective performances in thirds over the past 30 years.

Here's 4/1991 to 4/2001:

Here's 4/2001 to 4/2011:

Here's 4/2011 to today:

Well, clearly, everybody's presently betting on the white line!

But if you think outside the crowd and simply plot the relative performance trends and how the leadership has tended to flip roughly every ten years, barring any other considerations (and there are of course many), history says it's time to pare back your bets on the white* and add some serious color* to your portfolio.

*White being U.S. equities, orange being Europe, yellow being developed markets (Europe, Far East, Australasia), blue being emerging markets.

I.e., the above, and other considerations, has us feeling very good about our present 50% of equities target to those colored lines.

With regard to commodities, here's from last week's macro update:
"...with regard to the opportunities in the commodities' space, aside from the obvious, consider the relative performance setup that's developed over the past 10 years.

I.e., while U.S. major equity averages are stretching epically into all time high territory, commodities and miners are just now breaking out of a decade-long downtrend:"

Thanks for reading!

Morning Note: The Curse and The Key

Keeping this morning's note brief; this week's important main message to follow a little later today.

Earnings reporting season is underway, and 3 of the big banks' (Goldman, JPM and Wells) were out this morning. Ironically, while all 3 blew away expectations, only Goldman is, at this point, in serious rally mode. JPM is actually trading lower...

Tuesday, April 13, 2021

Morning Note: Beware your predictions...

While inflation (CPI) came in a bit hotter, month-on-month, than economists expected, based on the reaction (lack thereof) in rates (actually dropped a bit), the street feared worse. 

Monday, April 12, 2021

Morning Note: The Fed Strives to Weaken the Dollar, And for "Good" Reason

Things I suspect will heat up as we move into the week... Q1 earnings reports will of course garner much attention, however, CPI, retail sales, regional manufacturing surveys and fresh housing data will be keenly focused on as well. 

Sunday, April 11, 2021

Positioning Technical Updates (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Friday, April 9, 2021

Macro Update: Asset Bubbles Abound, However...

While our macro index's overall score didn't budge this week (remaining at +18.37), the number of positive inputs did rise to 45% of the total, negatives also rose, to 27%, neutral inputs declined to 28%.

Morning Note: "The Game is About Preservation of Capital"

With all due respect to any conspiracy theorists out there, it's been my all-too-often observation/opinion that conspiracy theories are, again, all-too-often, about outcomes that simply don't comport with the theorist's preconceived notions.

Thursday, April 8, 2021

Once Again, Privatizing Gains While Socializing Losses

Once again, in little more than a decade, the powers that be have facilitated the privatization of gains (subprime corporate debt buyers made great hay while the makin was good), and the socialization of losses (stuck the taxpayer with the garbage when the risk came home to roost). 

So, think of the wife as the taxpayer, think of the husband as the Fed, think of the bottles as all of the insolvent debt that the Fed effectively removed from the hedge fund and private equity firms' portfolios -- and placed onto the taxpayer's -- and think of the cream as all of the stimulus:

Morning Note: One Thing That Never Changes

Yesterday I pointed to the dangerous level of giddiness presently displayed among the investment advisor crowd. Well, this morning the AAII's weekly individual investor sentiment survey results were posted, and, well, investors are not heading my advice (I subtitled yesterday's post "Never Party With Investment Advisors").

Wednesday, April 7, 2021

This Week's Message: Levered Blow-Ups are Seldom One-Offs, Naked Swimmers -- And -- Never Party With Investment Advisors!

In our portfolio call this morning, Nick and I found ourselves discussing the recent plunge of ViacomCBS stock as a result of the imploding of a ridiculously leveraged (read greedy) hedge fund (Archegos), which ostensibly threatened the solvency of more than one of the global financial institutions that provided the leverage. Credit Suisse, for example, will bleed a few $billion, while, not to mention, its head of risk management lost her job over the debacle.

Morning Note: Risk/Reward Setups -- And -- When We Crowd Together

Like I keep saying, there are too many similarities between today and the early 2000s to sit back and accept the "it's different this time" mantra coming from Wall Street.

Now, indeed, perhaps it is (different this time), but even the present-day arguments in that regard are eerie echoes of the tech-inspired mantra of the late-90s.

Fiddling around with graphs this morning, something's jumping out at me...

Tuesday, April 6, 2021

Quote of the Day: Two Sides of the Borrowing/Spending Coin

In Friday's video I mentioned how stimulus checks over the past year have coincided with spikes in auto sales.

Well, per economist Dave Rosenberg, there are two sides to that aggressive-stimulus/get-people-borrowing-and-spending coin:

Morning Note: A Lot of Positive Priced In

In last Friday's macro video I pointed to the huge spike in the purple line below:

Monday, April 5, 2021

Morning Note: Robin Hood feeling some pressure...

In Friday's video macro update I suggested that the negative correlation (of late) between stocks (tech in particular) and higher interest rates might -- in light of Friday's big jobs number -- be put to the test this week.

Saturday, April 3, 2021

Quote of the Day: The Problems With Easy Solutions

While discussing markets, economies and general setups with the board of an institutional client last week, I was presented the ever-pressing question asked of those of us who've managed a few market rodeos in our day, “roughly when do you expect the market to roll over?”

Friday, April 2, 2021

Macro Update (video)

Presenting this week's macro update via video... I touch on what has our index pointing up, on the details of this morning's jobs report, on our overall thesis and on how we're expressing it in our core allocation...

Big 8-point jump in our macro index this week!

Here are the details:


Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Thursday, April 1, 2021

Quote of the Day: "excesses are never permanent" -- and -- "resolve and discipline always win out"

From economist Dave Rosenberg's morning note:
"The one thing us old-timers can rely on is that history shows that (i) there are no new eras, (ii), anything that can’t last forever will not, (iii) excesses are never permanent and (iv) resolve and discipline always win out over the extreme emotions of fear and greed. Paste that to your wall." 

Yeah, I'm an old-timer...

Morning Note: Don't Be Fooled By All the Fun! Unless of course you love risk...

So, let's get yesterday's news out of the way...

Proposed: $2.25 trillion on infrastructure over 8 years, with another $1 trillion trailer to come. 

Wednesday, March 31, 2021

This Week's Message: The All-Critical Dollar -- And -- Key Highlights From Our Latest Messaging

For this week's main message I'll touch on the all-important (critical even) dynamics around the dollar, then I'll cut and paste some key highlights from our latest messaging...

Fiscal spending at historic levels... Fed balance sheet bloated beyond recognition... Running interest rates at zero ("for the next 3 years", despite the promise of a growing economy)... Fed to allow the economy to "run hot" (read inflation) going forward ... $3 trillion++ of additional stimulus coming... $2 trillion savings overhang... Reopening... yada yada... 

Morning Note: "What I believe in is compounding and not losing money"

There's the anticipation of big news today from Washington on big infrastructure. While it would be the definition of ridiculous, and utterly reckless, to suggest that a massive amount of deficit spending is long overdue, one could argue that a significant infrastructure spend has indeed been a long time coming -- or, let's say, it's been a long time anticipating...

Tuesday, March 30, 2021

Morning Note: Words Worth Heeding!

Pretty much the same junky look for equities this morning that characterized yesterday' session: ~60% of the SP500's members are in the red, Nasdaq comp's losers are besting gainers 2 to 1, and so on. 

Monday, March 29, 2021

Charts of the Day: Pricey and "Junky"

In Saturday's note I wrote:

Morning Note: The Danger of "Resulting"

Last Friday Goldman Sachs, Credit Suisse and Nomura found themselves in the unenviable position of having to dump some $20 billion worth of a handful of Chinese tech stocks and U.S. media firms as their hedge fund client Archegos Capital Management got way over its skis. And there's no way to know at this juncture if the mess is yet over...

Sunday, March 28, 2021

Just a small piece of a ginormous jigsaw puzzle...

We've been drawing comparisons here and there between the present setup and the 1930s since late 2019. Typically we'll reference similarities in the overall debt setup. Less so in an equity market context. Nevertheless, while a great depression is highly unlikely to occur anytime soon, there are some similarities worth paying attention to.

Saturday, March 27, 2021

It's Never All Said and Done

It's interesting... Listening to "Wall Street"... Looking at retail investor sentiment surveys.... Tracking the bull/bear sentiment spread emerging from investment advisor surveys... Measuring the cash (lack thereof) held by mutual funds... And, per today's Bloomberg article titled Bubble Deniers Abound to Dismiss Valuation Metrics One by One, considering the number of perhaps legitimate gurus who are capitulating (like it's 1999) to the notion that traditional valuation metrics simply don't matter, as, "it's different this time" -- well, I for one, would offer up zero argument if you were to suggest to me that sentiment is, at present, dangerously optimistic.

Friday, March 26, 2021

Macro Update: Not What You'd Expect

While the graph of our PWA Macro Index is starting to look concerning (declining again this week, by 4 points to 10.20), the fact that what's ultimately driving much of the data -- as artificial (non-organic) as it is -- is nowhere near due to subside, has us anything but reactive right here.

Morning Note: System-driven

In this week's main message we pointed to things that just don't make sense during recessions, and that have occurred this go-round nonetheless.

One of those things was rising personal income.

Here's that section:

Technical Setups (video)


Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Thursday, March 25, 2021

Morning Note: Optimism Reigns

You sure wouldn't expect equity markets to be struggling right here (as they have this week) if all you did was check the sentiment data from around the world.

Wednesday, March 24, 2021

This Week's Message: Huge Caveats Needed!

Being on vacation the past few days and, therefore, limited in terms of my ability to stay intimate with the pulse of world goings on, I had to choose carefully what I took in, when I had the opportunity to take something in. 

So I decided I'd here and there skim through the latest work of other macro actors whom I respect. 

In this week's main message I'll reflect on the very odd circumstances, and the overall investment setup, we're having to traverse.

Thursday, March 18, 2021

Macro Update: Slight Pullback

Keeping this week's macro update short and sweet...

Our proprietary macro index gave back a smidge this week, dropping 2.04 points to 14.29:

Morning Note: After Sleeping On It

In yesterday's morning note I suggested that if Fed Chair Powell didn't express a willingness to get in front of rising interest rates in yesterday's presser (via unconventional means [ycc] that didn't constitute a tightening) that we'd "see interest rates spike and stocks (tech especially) tank."

Wednesday, March 17, 2021

Quick Thoughts On This Week's Fed Meeting, And On Precious Metals

Here's from Bloomberg's follow-up to Powell's press conference:

This Week's Message: Thinking Out Loud and A Few Highlights From Our Latest Messaging -- Or -- The Tail Be Wagging the Dog

For this week's main message I'll simply think out loud (well on my keyboard) for a minute then cut and paste a few highlights from our most important recent messaging.

Morning Note: Beware the "Seemingly Superior Financial Opinion"

Federal Reserve chief Jerome Powell has quite the task ahead of him today, as this week's rate policy meeting concludes and he has to report what's what to the world -- well, to the markets!

Tuesday, March 16, 2021

Monday, March 15, 2021

Quote of the Day: Even Shaq's Getting In On the Action!

Economist Dave Rosenberg has ridden several market rodeos in his day, and, thus, like yours truly, has his concerns about what's presently occurring beneath our very noses.

Morning Note: "Mass Escape from Reality"???

Interesting that the stimulus checks have started rolling and stocks are more or less stuck in the mud to start the session. And this is despite good news on bookings from Southwest Airlines and JetBlue. Hmm...

Saturday, March 13, 2021

Quote of the Day: Beware the Media, and the CEO, Narrative

Back in the day, when I made myself available for one-off television spots, I would often find myself frustrated when, in a recorded interview, on, say, a topic like minimum wage, I felt that I made some very important points that were counterintuitive for most folks and, therefore, important for them to hear. My frustration would come when watching the edited version on the evening news: So often my (to me) pithy points were completely cut out, as it was clear that the producer had his/her own message in mind and, therefore, would include only my words that seemed to support that narrative.

Friday, March 12, 2021

Macro Update: Rising Expectations

The steady ascent of late of our proprietary macro index took a pause this week, with our overall score remaining at +16.33:

Morning Note: If This Keeps Up

So, possibly as early as this weekend a lot of folks are going to receive a very nice injection of cash into their bank accounts. While we can get into the whys and the wherefores and pontificate on need, inflation, distortion, yada yada, we'll just for now acknowledge that such government largesse to this point has been very bullish for the stock market.

Thursday, March 11, 2021

Quote of the Day: Beware "The Dreamland of Past and Future"

In last Thursday's Separating Signals from Noise I closed with:

Morning Note: "Eventually" is the Least of the Central Banker's Concerns -- And -- Confusing Technology With Intelligence

We've been spending a lot of time herein of late on interest rates, their recent rise, the monster financial market risks should they continue to rise, and, thus, the assuredness that central bankers will do everything within their legal capacity (and more) to stem that tide before (or immediately after) it crashes into the stock market's shore.

Wednesday, March 10, 2021

This Week's Message: The Setup, Debt, Some History, Inflation, Opportunities, etc. (video)


Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Morning Note: Beneath the Numbers

Well, thank heavens that scare's over. I mean, recent action -- not to mention the chart I featured yesterday morning -- was beginning to spell trouble. But now Tesla's back above $700 (from the $500's two days ago), GameStop's back to nearly $300/share, the S&P 500 roared 1.4% yesterday and the Nasdaq 100 staged a rip-your-face-off 4%+ rally.  Whew!!!

Monday, March 8, 2021

Morning Note: Arresting the Flow

Hedge fund manager David Tepper, in a CNBC interview this morning, rescued the market from a notably, and surprisingly (given the weekend stimulus news), down open.

Friday, March 5, 2021

Macro Update: The Balance of Risks Has Shifted!

I'll be out of town this weekend, so I'm crunching the essential weekend tasks into today's things to do. Thus, I'll keep this week's macro note brief and to the point.

Morning Note: Read Carefully

This morning's jobs number surprised bigly to the upside. Uh oh!!

I'll explain "Uh oh!!" in a sec...

Wednesday, March 3, 2021

This Week's Message: What's Up With Gold? -- And -- Highlights From the Week Past

If you've been watching the price of gold lately, you might be wondering what's up, or why it’s down?

Allow me to answer with one simple 5-year chart.

Morning Note: We Can Only Hope "This Time is Different"

You gotta love Wall Street! BofA analyst Stephen Suttmeier is out with a note stating that the buying of stocks with borrowed money (margin debt), while it's at an all time nominal high, is not excessive -- when you look at it compared to the total nominal value of the stock market.

Tuesday, March 2, 2021

Monday, March 1, 2021

Morning Note: Carts Before Horses -- And -- Chimps Before Traders

If this morning's bounce is any indication, there's yet more oomph to be had in the equity markets on news that simply confirms what we already know -- that fresh new money's to be delivered to the economy, by the proverbial truckload.

Friday, February 26, 2021

Macro Update: Mixed Macro Messages, And a Quick Note on Today's Market Action

Our proprietary macro index continued its upside breakout this week, adding 8.17 points to its overall score, which now sits at +14.29:

Morning Note: "Tremendous Discipline" Required

Massively oversold treasuries are rallying, yields tanking (whew!) mightily, as I type this morning. And, therefore, after their mini bloodbath, interest rate sensitive tech stocks are rallying nicely as well. 

While that's enough to goose the major averages (Nasdaq and SP500 in particular), given its heavy representation therein, tech is pretty much all that's working this morning.

Thursday, February 25, 2021

Morning Note: Utterly Panicked Fed!

The headline that crossed my phone at the market open:

"S&P 500 falls after 10-year rate hits one-year high, tech stocks lead decline"

Wednesday, February 24, 2021

This Week's Message: Exploring the Pent-Up Demand Narrative, and What It Portends for Markets

Imagine, after being locked down now for nearly a year, the historic economic bounce we're going to see once -- when things really open up -- all of that pent-up consumer demand is unleashed! 

Throw in a few trillion of fiscal, and monetary, support, and, my goodness, stocks have got to absolutely soar!

Morning Note: Thinking About Popper

It's unusual for us to be featuring the boring 10-year yield chart so frequently here on the blog. Of course, as you've noticed, things have gotten a bit lively there of late.

Tuesday, February 23, 2021

Quick take from our research thread... And a bit more on this morning's action...

This morning I copied and pasted into our internal research thread a blurb that mentioned a just-placed $30 million 3-day bet on Tesla call options with a strike price of $700...

Here was Nick's response:

Morning Note: Seismic Activity Has Our Attention

As we've been pounding for months, stocks, in the aggregate, simply can't do rising interest rates.

And, well, contrary to popular opinion of late, they simply can't stay loftily afloat forever either.

Monday, February 22, 2021

Morning Note: So What's Up With Stocks?

Hmm.... We know there are a couple $trillion worth of government gifts coming, including $1,400 direct to the person checks. And we know there's $3 trillion more coming relatively soon, in the form of infrastructure spending. 

Now that's the sort of news that had markets screaming higher last year, in the face of a global pandemic, no less.

Friday, February 19, 2021

Macro Update: Double Dip Off the Table, as long as...

In technical analyst jargon, our macro index has (per the graph below) broken through resistance (up 6.12 points this week) and successfully tested that line (now support) over the past three weeks, in continuation of the uptrend off of its June 2020 low. 

I.e., the macro backdrop looks encouraging, and, purely technically speaking, it may indeed have legs (although failed breakouts are common, regardless of the asset/index being analyzed):

Morning Note: Tyrannical Impulse

Deere knocked earnings out of the park (we like industrials right here!) and global manufacturing PMIs showed encouraging improvement overnight. "Stimulus" by the boatload is on its way and the new treasury secretary keeps saying that we simply can't go too big on government spending going forward, "now's the time!"

Uh oh!!

Thursday, February 18, 2021

Quote and Chart of the Day

Economist Peter Boockvar sympathizes with our position on the relationship between interest rates and equities, and on what higher rates portend with regard to the present overall debt setup.

From his note this morning:

Morning Note: The Irony

Man, the irony, for the moment, is thick... 

Aside from the disappointing jobless claims number this morning, the outlook for the economy is borderline giddy -- yesterday's retail sales number (yes, those $600 stimulus checks got spent), and the projected GDP bounce to come (off of a ghastly year-ago low of course), has Wall Street salivating. Yet, stocks are looking more and more fragile as the days wear on... Hmm...

Wednesday, February 17, 2021

Morning Note: What a Good Setup Looks Like

Just a quick note this morning; our main weekly message coming your way later today...

So, way stronger than expected retail sales reported for January, and, well, stocks are taking a hit this morning... Yep, stocks are trading these days on the prospects for stimulus, and good news of course doesn't stimulate the need for stimulus... I've seen this before, by the way...

Tuesday, February 16, 2021

This Week's Message: Latest thoughts on 2021's prospects...

There’s literally zero doubt in my mind that we are in a classic stock market bubble, particularly in the high flying growth names; Tesla stands out, to put it mildly.

Now, that's "my mind" I'm talking about. Clearly, much of Wall Street, and most of Main Street, disagrees with me. And, frankly, being in a bubble does not mean that there are no legitimate opportunities to exploit in markets... It's all about how you go about it...

Morning Note: The Problem With Higher Yields

Treasury yields are spiking big this morning as the world anticipates a robust mix of growth and inflation over the coming months. 

Sunday, February 14, 2021

14 Things You Must Believe To Believe It's Different This Time

Just a little thinking out loud... well, on my keyboard... this morning...

Now, don't get me wrong, this market has momentum, more stimulus is coming, the service sector will bounce back, the Fed will suppress the yield curve if/when interest rates get out of hand, and so on... Therefore, trying to time the end of this mania is a fool's errand...

But still...

Friday, February 12, 2021

Thursday, February 11, 2021

Quote of These Times

Here's macro guy/Bloomberg opinion columnist/author and host of a popular market podcast, Jared Dillian, on Twitter this morning:

Morning Note: Pain is Essential!

I'll keep this morning's note quick; this week's main message will follow very shortly...

This Week's Message: Just a Few Thoughts on Wall Street and the Fed

First, before I dive into what I'm thinking about what I'll call Wall Street's current base case, allow me to point out that we are actively investing in equities on behalf of our clients. I'll circle back later in this missive with more specifics...

Wednesday, February 10, 2021

Morning Note: Dude!!

The January CPI numbers were released today, and, well, as you should expect (see last week's macro update) the price of stuff (goods) is rising...

Tuesday, February 9, 2021

Morning Note: "Can the Fed Circumvent Human Nature?"

Clearly, judging by the latest price action, traders/investors anticipate great things from the great amount of continued government stimulus to come.... Plus, and this is a big plus, it's going to be so great that they see it ultimately sparking a not-small amount of inflation in the process.

Saturday, February 6, 2021

Keep Your Wits About You!

Pressed for time this weekend, so forgive me if I miss a proper edit here and there... But I woke up this morning feeling a strong desire to write the following...

Friday, February 5, 2021

Macro Update: Finally Back in the Green (albeit barely) -- And -- On Jobs and Stocks

Finally, after 15 months without a positive overall score, our proprietary macro index peeked its nose above the zero line this week, albeit barely, coming in at +2.04:

Morning Note: Contagious...

We'll stick mostly to numbers this morning; our macro update, coming your way later today, will have more meat to it.

Yes, stocks have had a very good week (following the opposite last week) as the powers-that-be are deploying their once-a-year (although they can use it twice this year, as it wasn't utilized in 2020) privilege ("budget reconciliation") to pass their COVID relief bill with a mere simple majority. 

Thursday, February 4, 2021

This Week's Message: I'm Talking Risk, Not Timing

Sitting here, sifting through the plethora of data, etc. I've accumulated over the past week for the purpose of penning this particular message, I find myself needing to reiterate that (as long-time clients and readers know) I'm anything but a gloomy Gus by nature. It's all about how the pieces (from economic data, to Fed policy [and practice], to valuation, to the fundamental and technical setups across major asset classes, to sentiment, and so on) all presently fit together.

Morning Note: A Hallmark of Every Bubble

As I continue to stress, two things financial markets (in the aggregate) can't live with going forward are higher interest and a rising dollar.

Wednesday, February 3, 2021

Morning Note: What Laxity Breeds

On the surface, earnings reporting season has been nothing short of impressive thus far. Under the surface.... well, it's all about results relative to expectations leading in. And, as you might imagine, Q4 2020 expectations, relative to where they were a year earlier, had been cut, notably

Tuesday, February 2, 2021

Morning Note: "Confusion Is Our Salvation"

Interest rates and the dollar are up, stocks are up, yesterday's darling, silver, is tanking and, just an FYI, last week's darling GameStop is getting demolished -- as I type.

Monday, February 1, 2021

Morning Note: Not the silver "short squeeze" you might think...

Sliver is all the rage this morning, as the retail trader -- specifically the one who chats on Reddit and trades, or used to trade, on Robin Hood -- is, either through his/her own perceived genius or, ironically, through the discrete egging on by elements he/she is otherwise committed to destroying, is attempting to squeeze the price of the metal (and the funds that track it) higher, and themselves richer in the process.

Saturday, January 30, 2021

Quick Note on Market Manipulation

Dan posted an old video in our research chat this morning featuring an ex-hedge fund manager explaining how he, and others, used to manipulate the market for their own short-term benefit (the "others" of course still do).

Friday, January 29, 2021

Macro Update: Inflation, maybe?

We've given you lots to digest herein this wild week, so I'll keep our macro update light on words and heavy on visuals.

Morning Note: Twist to Fit

If, like a lot of folks, the GameStop story has you intrigued, and you happened to have missed this week's main message, give it a look, in it you'll find my take. News this morning is that it very much has the attention of the SEC.

Thursday, January 28, 2021

Morning Note: The Unexpectable

"Coming sure and fast, that profit of millions! But it never reached me. No; it wasn’t side-tracked by a sudden change in conditions. The market did not experience an abrupt reversal of form. Coffee did not pour into the country. What happened? The unexpectable! What had never happened in anybody’s experience; what I therefore had no reason to guard against. I added a new one to the long list of hazards of speculation that I must always keep before me. It was simply that the fellows who had sold me the coffee, the shorts, knew what was in store for them, and in their efforts to squirm out of the position into which they had sold themselves, devised a new way of welshing. They rushed to Washington for help, and got it."

--Jesse Livermore, circa 1923 

Wednesday, January 27, 2021

This Week's Message: Too Much of a Good Thing -- And -- Explaining GameStop

I recall 1999 like it was yesterday... Experiences that engender the most visceral sensations tend to remain prominent in one's psyche.

Morning Note: The Problem With the Charts vs The Fundamentals

Today's Fed announcement will be interesting.

As I wrote recently, while it's no secret that the U.S. Central Bank is ultra-sensitive to the stock market, they've lately been receiving some much-deserved, and inexcusably-overdue heat over blowing up the greatest equity market bubble in nearly a century.

Tuesday, January 26, 2021

Morning Note: "conventional wisdom had nothing to do with the truth"

Yes yes, new day, same 2021 story. If you missed yesterday's charts of the day, please go there now and I won't belabor the sector breadth issue here.

Monday, January 25, 2021

Charts of the Day: Why We Care About Sector Breadth

If you're at all wondering what keeps me harping on nearly every day lately about the poor sector breadth I'm noticing, well, Bespoke Investment Group -- having noticed it as well -- put some history to it this morning.

Morning Note: Disjointed!

Treasuries are in rally mode this morning, as is the implied volatility priced into S&P 500 options (the VIX), while energy, financial, material and industrial stocks, and most commodities (although food is up) are taking hits. 

Sunday, January 24, 2021

So Why is Wall Street Always So Bullish? "The easiest question of the day"

I recalled a recent conversation with a client while listening to an excellent, wide-ranging interview with investing legend Jeremy Grantham last week. 

Friday, January 22, 2021

Chart of the Day: Epic Concentration

Currency setups going forward, relative valuations, dividends and demographics in a number of developed and developing markets are factors suggesting that foreign equities may have an edge over the U.S. in coming years. 

Macro Update: Back to Zero -- And -- What Would Seem So Obvious

December truck tonnage (Christmas online shopping) -- our only needle-mover this week -- jumped from negative to positive (2 points) in our scoring, bringing our macro index back to zero. 

Morning Note: Risk and Reward go Hand in Hand -- Or -- Effectively Cocooned?

You guessed it, even though the major averages are giving some back this morning (ostensibly on COVID headlines), their degree doesn't do justice to the stink of the underlying breadth.

Thursday, January 21, 2021

Morning Note: "No new eras", when we're talking bubbles...

You're probably growing tired of my harping on how market internals (breadth in particular) remain anything but inspiring to start the year. 

Yeah, I wish it wasn't so, but we're here to see things as they are and invest accordingly.

Wednesday, January 20, 2021

This Week's Message: Plenty Bubbly

Stocks, for the moment, are liking the spending side of what the new administration would like to accomplish. At some point, however, they're going to have to process the taxing side

Morning Note: Morning Breadth -- And -- "Triumphal Linearism"

Yep, the calendar's turned and a new administration's assuming "power", however, on too many days in my view so far this new year the opening market action smacks of 2020.

Tuesday, January 19, 2021

Morning Note: Go Big!

"The market" (traders/investors in the aggregate) has seen incoming treasury secretary Janet Yellen's prepared remarks for today's presentation to congress, and it's liking her pleas to use the low interest rate environment to go big on borrowing and spending.

Monday, January 18, 2021

Morning Note: Uncommon Sense

In many of our client reviews we've been discussing the pent-up demand narrative that so pervades Wall Street think of late.

Friday, January 15, 2021

Macro Update (video)


Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Morning Note: Takes time and discomfort for profits to stick...

Almost couldn't believe my eyes this morning when I read this quote from the latest commentary of a central banker:

Thursday, January 14, 2021

Financial Market Quote of the 21st Century

If you'll take the time to carefully read (not just my bolded lines) the excerpt below, think about it, digest it -- ask me questions about it to gain clarity if you like -- you'll begin to grasp what truly underpins the market action that seems so nonsensical to so many tutored, experienced investors. 

Morning Note: Bull Market Euphoria, $2 Trillion -- And -- The Fed Don't Do "Falsification"

965,000 folks filed "first-time" unemployment claims last week, which was close to 200k above expectations. Another 284k filed initial claims on the Pandemic Unemployment Assistance program; 161k was the estimate.

And of course the stock market's rallying this morning!

Wednesday, January 13, 2021

This Week's Message: Tweaks to Come -- And -- Reiterating the Case for India

Macro strategists/consultants Raoul Pal and Julien Brigden published their monthly call yesterday. 

Here's Pal on the current setup (in a nutshell) and how he's presently hedging:

Morning Note: Fed catching heat...

So the 6-day rally in interest rates looks like it won't make it to 7. 

Tuesday, January 12, 2021

Quote of the Day: Avoid Extremes!

Words of profound wisdom from Dave Rosenberg emphasis mine...

Morning Note: Funding all the fun...

I'll say it again, the U.S. central bank (the Fed) has backed itself into the worst of corners!

The 10-year treasury yield is up for the 6th straight day, and it's no wonder.

Monday, January 11, 2021

Quote of the Day: The True Picture of the "Labor System"

More on the epic mismatch between present levels of the stock market and the real economy from Forbes yesterday:

Morning Note: Watch the Dollar

The dollar is continuing what I'll call its oversold/short-covering rally to start the week, and this time stocks are somewhat acting accordingly.

Friday, January 8, 2021

Macro Update: Context

Nudged higher by purchasing manager surveys and the trend in outperformance of stocks over bonds, yet hindered by rail traffic, our proprietary macro index is yet again looking to peek above the zero line.

Quotes of the Day: Capitalism doesn't work without cost (or risk)

In yesterday's Wall Street Journal, former FDIC chair Sheila Bair accurately and succinctly assessed the bizarre financial landscape we find ourselves traversing.

Morning Note: Like Yesterday

So it's day two of Groundhog Day (the movie), although not as dramatically in terms of U.S. stock gains -- at least not at the open.

Thursday, January 7, 2021

Morning Note: Largesse

Stocks are off to another nice start this morning, although in concentrated fashion. 

While the S&P 500 is up 1.4% as I type, roughly 40% of its member companies are actually in the red. Utilities and consumer staples are heading lower; industrials and healthcare are relative laggards to start the day as well.

Wednesday, January 6, 2021

This Week's Message: Highlights From Our 2020 Letter

As is usually the case I have much queued up to share with you in our main weekly message. 

Having sifted through the data and macro commentary I found worthy to cite, I've decided to keep it in queue this week and instead offer up some highlights from our lengthy 2020 year-end message.

As much of it touches on/confirms much of what I have queued up to share.

Morning Note: The "Most Dependable Feature" of Bubbles

Well, the bond market isn't waiting for the one Georgia runoff left to call to be called.

As I type the 10-year treasury yield has thrust higher to the tune of 9.31%, breaching 1%, a level it hasn't seen in quite some time.

Tuesday, January 5, 2021

Morning Note: Diminishing Returns

Continued strong demand for goods -- no doubt capturing no small amount of what would've been spent on services absent COVID -- is keeping the manufacturing space humming along.

Monday, January 4, 2021

Chart of the Day: Commodities chart looks compelling...

Julien Brigden is at the top of my short-list of other macro strategists worth listening to.

I like that he sees and likes what we (fundamentally and technically) presently see and like:

Morning Note: The Fiction

The first trading day of the new year has seen the Dow move within a 400+-point range within the first hour. It's currently near the bottom of that range.

Saturday, January 2, 2021

PWA 2020 Year-End Letter, Part 8: Conclusion

In this year's lengthy final letter we touched on the importance of tracking the trends and momentum in data versus in (or in addition to) stock prices. We tackled the debt bubble and how policymakers are working toward a Japan-like outcome. We explored the good, the bad and the ugly of the current stock market setup. We illustrated why we like commodities going forward. We broke the U.S. equity market down by sectors. And we explored a bit outside U.S. borders...

In this concluding Part Eight we'll take one more look at the current stock market setup, we'll ponder what a post-COVID economy portends, and we'll finish up with where we see true opportunity.

Friday, January 1, 2021


So I received an email this morning from a dear long-time client and friend, Gordon, that inspired me to jump right to my keyboard and, with permission, share it on this New Year's Day with clients and blog subscribers.  

Which, given other commitments today, may delay the grand finale to our year-end letter by a day or two...