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"...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
What I'll call my broken-record line of the past several months has been:
"While you and I may or may not appreciate the world we'll be living in during the next cycle, it'll be rich with macro investment opportunities, once we're through whatever's left in the current cycle."
So let's break that down:
My implication that there's more to play out before we can declare coast is clear to allocate for the early-cycle phase of what's to come stems from, frankly, 39 years of intimacy with the economy and with global markets.
"The reports of my death are greatly exaggerated."
--The US Dollar
Among the factors that influence the asset mix of a thoughtfully designed global macro portfolio, the manager’s long-term dollar thesis is key.
Numera Analytics just published their year-end macro strategist commentary... If you've been keeping up with our year-end message to this point -- Part 2 and the recent video update, where we delved into yield curve dynamics, in particular -- the following from the aforementioned commentary will ring very familiar.
I.e., while we're not consensus right here (which, frankly, only emboldens our conviction), per the below, we're not the only ones seeing what we see:
Dear Clients, here's another one to be sure to take in...
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Attention clients, this is an important one to take in, start to finish 😎.
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In last year's year-end message we expressed the following go-forward view of equity market conditions:
"As for our present view of conditions, while we don't believe we're out of the icy water just yet -- and, for the moment, we anticipate that'll it'll get even colder before things begin to warm up -- we indeed see bluer skies on the not-too-distant horizon... Although, as you'll read in the remainder of this year-end message, we think the skating will be far better on ponds the vast majority of investors neglected during the previous bull run."
Here's the S&P 500 year-to-date:
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As you (clients) know, I enjoy using analogies to explain our view of market and economic general conditions... In the past I've associated our macro analysis with the flight path of an eagle affixed with electrodes, etc., that allow us to monitor its vital functions as it glides across blue skies, sores to high altitudes, and flaps its way through the storms that occasionally cross its path.
Fishing, basketball and ice skating have also inspired some storytelling that has helped me drive home how we approach the task of preserving, protecting and growing our clients' wealth in a manner that has them satisfying their objectives while, ideally, feeling comfortable amid the inevitable ups and downs delivered by world markets.
Here's the intro to our internal monthly equity market conditions analysis, including our technical view of the current US dollar setup:
11/30/2023 PWA EQUITY MARKET CONDITIONS INDEX (EMCI): -41.67 (-16.67 from 10/31/2023)
SP500 Index November 2023, +8.92%:
SP500 Equal Weight Index November 2023, +8.87%:
November turned out to be the best month of 2023.
While the EMCI score was still net negative, it had risen an unusually large 33 points by the star of the month.
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The following quote (and video), along with our own models, speaks to our stubbornness around remaining hedged right here:
"Stock investors should hope for the best but prepare for the worst when it comes to gauging the outlook of the US economy. Soft-landing optimists have a case to make, yet the historical evidence is overwhelmingly bearish when it comes to the end of previous Fed hiking cycles. Equities face steep losses if the economy sees a “softish” or hard landing.
In the 11 times when the Fed has tightened monetary policy to combat inflation since 1965, stocks escaped largely unscathed only about three times. The other occurrences saw average peak-to-trough losses of nearly 30% in the years after interest rates peaked."
-- Tatiana Darie (Bloomberg)
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