Friday, January 22, 2021

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.

I.e., were it not for the tech sector, the hit would be nearly 3 times worse. We'll add the equal weight index as part of our morning reporting going forward.

Asian equities suffered a rare (of late) selloff overnight, with 13 of the 16 markets we track closing notably lower.

Europe's getting battered as well this morning, with all but 2 of the 19 bourses we follow presently in the red.

U.S. major averages, while lower, are faring better than their foreign peers: Dow down 166 points (0.50%), Nasdaq flat, SP500 down 0.23%, SP500 Equal Weight down 0.67%, Russell 2000 down 0.86%.

The VIX (SP500 implied volatility) is up 2.16%, VXN (Nasdaq i.v.) is down 1.52%.

Oil futures are down 1.60%, gold's down 0.94%, silver's down 2.23%, copper futures are down 0.72% and the ag complex is down 0.93%.

The 10-year treasury is up (yield down) and the dollar is up 0.04%.

Dragged by energy, industrials, ag commodities, gold and emerging market equities, our core mix is off 0.67% as I type.

I can't recommend Strauss and Howe's The Fourth Turning strongly enough:

"“The farther backward you look, the farther forward you are likely to see,” Winston Churchill once said. The challenge is to look at the future not along a straight line, but around the inevitable corners. To know how to do that, you have to practice looking at how the past has turned corners."

"You should try to unlearn the linear belief that America (or the entire modern world) is exempt from the seasonal cycles of nature. As you become acquainted with the saeculum, you will meet a very different view, one arising with the ancients—the view that the rhythms of social change are reflected in the rhythms of biological and seasonal nature."

As we sit here today, the powers-that-be are desperately attempting to circumvent the cyclical rhythm of the financial markets. And one might argue that they are thus far "succeeding." 

Of course the longer it appears as though they've effectively mitigated major downside risk, the lesser the upside potential by participating in markets. I.e., risk and reward forever go hand in hand; a concept entirely lost on today's Robin Hood trader...

And, alas, of course the longer it appears as though they're "succeeding", the greater the correcting market nature must bring to bear should it indeed, in the end, not be rendered permanently cocooned by the Fed.

Have a nice day!

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