China rides to the rescue?

The headlines from last week sounded dire. It began when China’s May economic activity report was disappointing, with industrial production, retail sales, and fixed-asset investment missing market expectations.      Then the Federal Reserve took an unexpected hawkish turn. The statement from the FOMC meeting acknowledged that downside risks from the pandemic were receding as vaccination...

A “value” industry that’s about to be the “Next Best Thing”

Recently, an investor aptly characterized value investing as a portfolio of problems with a call option on good news. One sector stands out as a group of value stocks that are taking on growth characteristics. As shown by its relative performance against MSCI All-Country World Index (ACWI), this cyclical industry bottomed out on a relative...

60/40 resilience in an inflation age

The fiscal and monetary authorities of the developed world are engaged in a great macroeconomic experiment. Governments are spending enormous sums to combat the recessionary effects of the pandemic and central banks are allowing monetary policy to stay loose in order to accommodate the fiscal stimulus. Eventually, inflation and inflation expectations are bound to rise....

Commodity supercycle: Bull and bear debate

Is it too late to buy into the commodity supercycle thesis? The latest BoA Global Fund Manager survey shows that respondents have moved to a crowded long position in commodities. Many analysts have also hopped on the commodity supercycle train, myself included (see How value investors can play the commodity supercycle).     As a cautionary...

How value investors can play the new commodity supercycle

The investment seasons are changing. Two major factors are emerging in altering the risk and return profiles of multi-asset portfolios in the coming years, rising commodity prices and value investing.   There is a strong case to be made that we are on the cusp of a new commodity supercycle. The last time the CRB...

A focus on gold and oil

I received considerable feedback from last week's publication (see How to outperform by 50-250% over 2-3 years), mostly related to gold and energy stocks.     In last week's analysis, I had lumped these groups in with other cyclicals. Examining them further, I conclude that both gold and energy stocks have bright futures over the next...

Growth stock wobbles

Mid-week market update: One of the defining characteristics of the current bull run is the dominance of US large cap growth stocks. Joe Wiesenthal wrote about the problem of the effect of the "superstar companies" on the economy in a Twitter thread and in a Bloomberg commentary. The "superstar companies" have few employees, and therefore high labor...

The guerrilla war against the PBOC

The enemy advances, we retreat In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like "whatever it takes" moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders...

A 2020 commodity review

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

Bubbleology 102: What could derail this momentum driven rally?

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

Beware the expiry of the 19th Party Congress Put Option

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

Correction is over, wait for the blow-off top

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

What would a contrarian do?

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

In search of the elusive inflation surge

US bond yields began to settle down last week when Fed Chair Janet Yellen stated in her Congressional testimony that the neutral rate for Fed Funds is roughly the inflation rate, which is much lower than market expectations. In addition, she allowed that the Fed is likely to re-evaluate its tightening path in light of...

More evidence of an emerging reflationary rebound

Mid-week market update: Further to my last post (see Nearing the terminal phase of this equity bull), There are numerous signs that the market's animal spirits are getting set for a reflationary stock market rally. First of all, the BAML Fund Manager Survey shows that a predominant majority of institutional managers believe that we are in...

(Chinese) blood in the streets?

The worries about China ebbs and flows. The latest BAML Fund Manager Survey shows that China fears are at flood levels again.     Indeed, developments such as the inverted Chinese yield curve is creating a sense of peak anxiety.     I recently highlighted analysis indicating that China fears are overblown (see Are the...

Will an oil spike kill the market bull?

I recently wrote about my scenario for a market top in 2016 (see My roadmap for 2016 and beyond), which goes something like this: Unemployment is now at 5.0%, which is a point at which the economy historically started to experience cost-push inflation. Inflation edges up, which is already being seen in commodity prices. Initially,...