Tuesday, June 1, 2021

Morning Note: Always Look to Disconfirm

Weekend and overnight global economic news (impressive Purchasing Mgrs Indices in particular) presumably explains a very nice pop higher in equities as June gets underway. 

But one thing that caught my attention immediately this morning was the pop in the VIX and in VXN (implied volatility for the S&P 500 and the Nasdaq 100 indices); they were up 3.10% and 4.66% respectively. There's typically a strong inverse relationship between the two, as rising implied vol suggests increased hedging among options traders.

In relatively short order (hours or days) we'll see stocks and implied volatility go their separate ways. Thus far this morning the Dow -- while still up 150 points as I type -- has halved its gain.

Did a fair amount of work on our inflation thesis over the weekend. The further I dig, and the more I get my head around the history of inflation, fiscal and monetary policy, etc., the more I'm thinking that inflation this go-round will (after a pause [decline] once bottlenecks are relieved) stick around far longer than many are presently discounting. More on this in our main weekly message tomorrow...

Asian equities rallied overnight, with 12 of the 16 markets we track closing higher.

Europe's in rally mode as well this morning, with all but 2 of the 19 bourses we follow in the green thus far.

U.S. stocks are up across the board: Dow up 157 points (0.47%), SP500 up 0.32%, SP500 Equal Weight up 0.57%, Nasdaq 100 up 0.16%, Nasdaq Comp up 0.21%, Russell 2000 up 0.90%.

Oil futures are up 3.62% (OPEC meeting), gold's down 0.15%, silver's up 1.24%, copper futures are up 0.31% and the ag complex is up 2.18%.

The 10-year treasury is down (yield up) and the dollar is down  0.29%.

Led by oil services stocks, ALB (lithium miner), energy stocks, URNM (uranium miners) and metals miners -- but dragged by treasury inflation bonds, gold and utilities stocks -- our core portfolio is up 0.77% to start the session.

As I've suggested herein recently, getting inflation (the dollar) right going forward will be key to investing success. Thus, our pounding of the data, and our poring over history. 

Now, you can rest assured that we're not remotely attempting to validate our structural inflation thesis, quite the opposite in fact. Like Falcon Management's Jim Leitner, we're forever mining for "disconfirming" evidence: 

"What I try to do in my trades is look for disconfirming evidence. It’s a very difficult practice and I have to continually train myself to ask why I believe something is going to go down, not why it should go up."  

Thanks for reading!

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