Thursday, June 8, 2023

Morning Musings: Anything Can Happen!, and, Quote, "Dealing with the future is all about ....... "

In the mood for some musing this morning (you might call it rambling, actually)…

As I think about what I view as the setup for asset markets in general, and as I consider the narratives of those who simply don’t see things my way, I find myself, in specific instances, marveling at the strength of their conviction.

Yes, I’m bearish – well, I guess I am… I mean, am I truly “bearish” if I simply notice dark clouds on the horizon? Am I truly bearish if I recognize certain stressors in the economy that, were they to become exacerbated, could lead to something very painful in, say, the equity markets?

And am I still a bear if I protect accordingly, yet nevertheless acknowledge that those clouds could ultimately blow over without bursting all over the economy? Am I still a bear if I protect accordingly, yet recognize that those stressors I see could actually ease on their own in a goldilocks sort of scenario? Am I a bear if I yet say, “Those acknowledgements notwithstanding, the risks, the uncertainty, right here, is such that prudence demands that we dial some defensiveness into our portfolios?”

Or, on the other hand, am I a bull if I say that the stock market rally – as historically-narrow as it is – is potentially a tell on the future… That, in the spirit of the theory of reflexivity, recessions and expansions don’t cause bear and bull markets, in fact (well, in theory) bear and bull markets actually cause recessions and expansions… And, therefore, the stock market rally off of the October low may very well see the rest of the market catch up, and the resulting animal spirits lift, for example, the manufacturing sector out of the doldrums and rescue the economy from recession?

Am I still a bull if maintain some risk (have some long equity exposure) and nevertheless say, “However, all that positive stuff said, the manufacturing space is in recession, which is virtually always followed by the same in the services space… And leading indicators are actually, right here, screaming recession looming… And the current rally is scarily reminiscent of the head fakes of the two epic bear markets of this young 21st Century?"

Well, I’ll tell you, in my humble opinion, what a true bear is; it’s the “expert” on the financial news station who only pulls the gloomiest statistics they can locate, who only illustrates history’s most bearish analogs that resemble the latest price movements of some major average, and who unabashedly proclaims that stocks are for certain going to plumb deeper lows before all’s said and done.

And the true bull, in my humble opinion, is the one who, for example, only cites the reflexive relationship between markets and the economy, and who only illustrates history’s most bullish analogs that resemble the latest price movements of some major average, and who unabashedly proclaims that the bottom’s in and there’s nothing but blue skies ahead.

Well, then, I lay claim to neither title… I’m simply a watcher, and an assessor of conditions… And, after 38 years of navigating markets, while I’m infinitely more knowledgeable today than I was, say, 30 years ago, I’m, ironically, far more humble now than I was then… As I’ve come to realize, firsthand, that the most important “knowledge,” when it comes to markets, is the knowledge that – my assessments notwithstanding – absolutely anything can happen!

You see, it’s all about managing risk, having a framework for gauging probabilities, and thus “knowing” when odds favor adding risk, and when they favor reducing it.

That's all 😎...

Asian stocks were mostly red overnight, with 11 of the 16 markets we track closing lower.

Europe's leaning green so far this morning, with 12 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow up 85 points (0.25%), SP500 up 0.34%, SP500 Equal Weight down 0.38%, Nasdaq 100 up 0.06%, Nasdaq Comp up 1.08%, Russell 2000 down 1.07%

As for yesterday's session, US equity averages were mixed as well: Dow up 0.3%, SP500 down 0.4%, SP500 Equal Weight up 0.66%, Nasdaq 100 up 0.1%, Nasdaq Comp down 1.8%, Russell 2000 up 1.8%.

This morning the VIX sits at 13.80, down 1.00%.

Oil futures are down 0.81%, gold's up 1.41%, silver's up 3.36%, copper futures are up 1.02% and the ag complex (DBA) is up 1.00%.

The 10-year treasury is up (yield down) and the dollar is down 0.66%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 23 -- led by SLV (silver), GLD (gold), DBB (base metals futures), URNM (uranium miners) and DBA (ag futures) -- are in the green so far this morning... The losers are being led lower by Dutch Bros, MP Materials, AT&T, VNM (Vietnam equities) and XLB (materials stocks).

"Dealing with the future is all about 1) perceiving and adapting to what is happening, even if it can’t be anticipated; 2) coming up with probabilities for what might happen; and 3) knowing enough about what might happen to protect oneself against the unacceptable, even if one can’t do that perfectly."

--Dalio, Ray. Principles for Dealing with the Changing World Order

Have a great day!


  1. I like Ray Dalio. He is very close to China PRC. He knows all the top officials and manages some of their investments as early as the '90.

  2. I have a question Marty. What do you think next week CPI will be? Do you see CPI trending down or reigniting back up? PCE was hot recently. Would CPI follow PCE? Your inputs are appreciated. Thank you.

    1. Hey Sam, I wish I knew, but if I had to guess, I'd say it'll come in softer than expected (at least year over year)... One reason why is base effects; notice the big monthly jump a year ago (May '21) -- (below are last year's monthly CPI numbers, I typed XXX by the high prints)... That's a high comp, that, all things equal, would make for a lower year-on-year May '22 print:

      January: 2.346 or 0.84%
      February: 2.568 or 0.91%
      March: 3.788 or 1.34% XXX
      April: 1.605 or 0.56%
      May: 3.187 or 1.10% XXX
      June: 4.015 or 1.37% XXX
      July: (0.035) or (0.01)%
      August: (0.015) or (0.04)%
      September: 0.637 or 0.22%
      October: 1.204 or 0.41%
      November: (0.301) or (0.10)%"

      Case in point would be last March's big monthly print (1.34%), and, right on cue, this March saw a big drop down to 5%, from 6% in February... June's number is, for this reason, likely to be soft as well... July thru December, however, it's the opposite, all things equal, inflation prints would be higher than expected.... Keep in mind, however, that we could very well see a marked slowdown in the economy the second half of this year, which would highly likely bring inflation way off the boil for awhile...

    2. Thank you so much! Very Insightful!

    3. You bet Sam! By the way, got my years wrong... replace '21 with '22, and '22 with '23 :)