Thursday, September 30, 2021

This Week's Message: Cause for Optimism, But... and Highlights From This Week's Messaging

Is there cause for optimism around equities heading into the fourth quarter? Sure. Is there nevertheless some serious risk in the overall setup? Yes. Should we, even if the optimists have it right, anticipate some serious volatility in Q4? Absolutely!

Ironically, much of the stuff that allows for optimism is the stuff that defines much of the risk as well.

Optimistic expectations:

  • No U.S default. Democrats can avert that all by their lonesome. And have all the political incentive to do so.
  • Infrastructure deal gets passed.
  • China successfully/bullishly kicks property bubble can down the road.
  • Covid fears/numbers abate.
  • Monster US spending package passes with lower tax hit than threatened. 
  • Cash-rich companies announce dividend hikes and aggressive share buyback plans during the upcoming earnings reporting season.


  • The factions within the Democratic party get so sideways (i.e., progressives [via threats around the debt ceiling and infrastructure] leveraging their shot at reconciliation to get their spending/taxing agenda passed) that they actually fumble the ball. 
  • China missteps and pierces its property bubble.
  • Covid 
  • Tax hikes resulting from the US spending plan spark an equity market selloff.
  • Companies issue disappointing earnings guidance based on supply constraints and rising input costs.
Now, the above lists are anything but exhaustive. For example, we've checked a plethora of boxes across our list of the characteristics that typically mark a market top (gotta stay hedged right here!). However, the lack of net recessionary conditions says the odds of an ugly protracted bear market in equities remain relatively low. 

Highlights from this week's messaging herein:

"Rising jobless claims (362k this morning vs 351k last week vs 335k the week before) fly directly in the face of evidence that says the economy's expanding.

Well, actually, maybe not.

Maybe they more reflect the fact that in some industries, say, auto, literally the inability to meet demand due to lack of components has them laying folks off, while there remains 10+ million job opening in other areas that can't seem to locate willing, qualified folks.

Bizarre (that last line)? Well, sure. Reflective, perhaps, of much too much top-down intervention into the private sector? Well, sure."
""As strange as it may seem, short-term uncertainty is exactly what we need in order to benefit from the long-term opportunity stocks can offer.""


"No doubt the threat of somewhat tighter monetary policy has something to do with the recent rise in rates.

In terms of the decline that began at 10am yesterday morning, well, it might have something to do with the 10am release of the Conference Board's consumer sentiment index. Which was down 4 points from the previous month, and notably missed expectations.

It, along with the University of Michigan's and Langer's consumer sentiment surveys comprise one of the 48 inputs to our proprietary macro index.

Here's all 3:

Whether it's concerns around the Delta variant, inflation, or what have you, suffice to say that the consumer -- while his/her spending patterns are holding up -- is beginning to wonder..."
"Our agriculture futures ETF now occupies a not-small position in our core portfolio. An article published this morning by Bloomberg titled The Country That Makes Breakfast for the World Is Plagued by Fire, Frost and Drought tells of why unpredictable weather patterns (disrupting production/sparking higher pricing) are a key part of our thesis:
“It’s a vicious cycle,” says Marcelo Seluchi, a meteorologist at Brazil’s Natural Disaster Monitoring and Alert Center. “There is no rain because there is no humidity, and there is no humidity because there is no rain.”

“Brazil hasn’t had a normal rainy season since 2010. “It’s been a very peculiar year,” he says. “Floods in Germany and China, and there’s a very serious drought problem in Brazil.”

"There’s also drought across the border in Argentina and in Chile, Canada, Madagascar, Mexico and Russia. The U.S. has been cleaved in two this summer: The West has been ravaged by record heat waves, forest fires and a drought so severe that, like in Brazil, giant lakes and rivers are drying up and straining hydro-electric power; the East, meanwhile, has been drenched by record-setting tropical storms and deadly floods.""


"Ex-Barclays managing director John Porter emphasized a, if not "the", key characteristic of successful traders/investors in an interview featured in Steven Drobny's insightful book Inside the House of Money:
" must have discipline. It is even more important than idea generation. The key over time is to have the discipline to capitalize on your successes and minimize your mistakes because, ultimately, the game is about preservation of capital.""

Thanks for reading!

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