Tuesday, September 26, 2023

Morning Note: Eyeballing Duration

In last week's video update I suggested that we're keeping a very close eye on "duration," implying that assets that respond most-positively to falling rates have our attention, although we’re not yet adding to any, right here... 

Speaking of duration (bonds in this case), former Bridgewater analyst and current fund manager Bob Elliot quantifies what he views as a notable overvaluation for stocks relative to their relationship to bonds (i.e., rates rising [bond prices falling "a ton"] virtually demands lower stock valuations):

And, by the way, the above would not account for the repricing that would likely occur in a recession (falling corporate earnings) scenario. Hence, we hedge.

Of course, another way to view the present setup would be to recognize that -- while stocks look [to perhaps put it mildly] expensive -- bonds are beginning to look pretty (historically-speaking) cheap. Hence, my comment that, while it may still be a bit early, we'll definitely be eyeballing duration going forward.

Asian stocks sold off overnight, with 14 of the 16 markets we track closing lower.

Europe's red so far this morning as well, with 15 of the 19 bourses we follow trading down as I type.

US equity averages are down to start the session: Dow by 205 points (0.60%), SP500 down 0.88%, SP500 Equal Weight down 0.59%, Nasdaq 100 down 1.09%, Nasdaq Comp down 1.02%, Russell 2000 down 0.71%.

As for last yesterday’s session, US equity averages closed higher: Dow by 0.1%, SP500 up 0.4%, SP500 Equal Weight up 0.3%, Nasdaq 100 up 0.5%, Nasdaq Comp up 0.6%, Russell 2000 up 0.4%.

This morning the VIX sits at 17.99, up 6.45%.

Oil futures are down 0.18%, nat gas futures are down 1.96%, gold's down 0.48%, silver's down 0.61%, copper futures are down 0.53% and the ag complex (DBA) is unchanged.

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

Among our 33 core positions (excluding options hedges, cash and money market funds), 4, XBI (biotech stocks), Range Resources, Dutch Bros and TLT (long-term treasuries), are in the green so far this morning... The losers are being led lower Albemarle, URNM (uranium miners), VNM (Vietnam equities), XLK (tech stocks) and XLC (communications stocks).

"The interval between whatever happens is just as important as what happens." --Alan Watts

Have a great day!

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