Thursday, August 3, 2023

Morning Note: Key Highlights

Here are some key highlights from our recent messaging herein:


"Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences."

--Howard Marks


"...yes, what's truly unique about current conditions is that they're coming off of the most massive stimulus measures the US has ever seen -- multiple times over, no less!

So, next question: Where would such previously unthinkable stimulus likely result in never-before-seen phenomena -- in equity market price trends, or in economic data trends?

Of course the answer could be both.

So, I suppose we should be asking, where might gargantuan stimulus result in the sending of dangerously false signals?

Of course, both, yet again, is entirely possible… And, alas, therein lies the dilemma:

1. A false bull market signal would end in substantial pain, particularly for the folks who’ve been overcome by acute FOMO (fear of missing out) of late.

2. False recession signals, as we come down off of said stimulus, would result in slim chances that inflation abates to a level that allows the Fed to come down off of what ultimately amount to un-bull-market-sustainable policy rates.

Hmm.... Don't know that we should be adding additional risk right here..."

Also Monday:

"If you're going to be an investor you have to think long-term, short-term, medium-term, and then upside down-term."

--Dr. Paul Sullivan

July 27th:

"...per BCA’s Doug Peta, IF a mild recession scenario ultimately plays out and we see a 15% hit to corporate earnings (a typical recession brings a ~25% hit), and were stocks to maintain their 20ish price-to-earnings ratio (p/e), the SP500 would experience a 15% decline… But of course a 20 p/e could be very fragile in a double-digit market selloff… I.e., a mere 15% hit to stock prices amid even a mild recession would be quite the optimistic scenario."

July 25th:

8. Excess savings in the US may have effectively kept recession at bay, and thus kept the bear market from seeing a poor-earnings-led second leg down.

Potential problem:

Asian stocks fell overnight, with 13 of the 16 markets we track closing lower.

Europe's getting hammered so far this morning as well, with 16 of the 19 bourses we follow trading down as I type.

US equity averages are down to start the session: Dow by 75 points (0.21%), SP500 down 0.50%, SP500 Equal Weight down 0.57%, Nasdaq 100 down 0.53%, Nasdaq Comp down 0.52%, Russell 2000 down 0.46%.

As for yesterday’s session, US equity averages traded lower: Dow down 1.0%, SP500 down 1.4%, SP500 Equal Weight up 0.2%, Nasdaq 100 down 2.2%, Nasdaq Comp down 2.2%, Russell 2000 down 1.4%.

This morning the VIX sits at 16.98, up 5.53%.

Oil futures are up 0.68%, nat gas futures are up 1.90%, gold's up 0.10%, silver's down 0.14%, copper futures are up 0.30% and the ag complex (DBA) is down 0.55%.

The 10-year treasury is down (yield up) and the dollar is up 0.14%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 11 -- led by Albemarle, Range Resources, ICLN (clean energy stocks), VWO (emerging mkt equities) and MP Materials -- are in the green so far this morning... The losers are being led lower by TLT (long-term treasuries), EWW (Mexico equities), Dutch Bros, AT&T and FEZ (Eurozone equities).

"...if we apply some insight regarding cycles, we can increase our bets and place them on more aggressive investments when the odds are in our favor, and we can take money off the table and increase our defensiveness when the odds are against us."

Marks, Howard. Mastering The Market Cycle 

Have a great day!

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