2020 is over, what’s the next pain trade?

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 Democrats’ trifecta win explained

Last weekend, I conducted an unscientific and low sample Twitter poll on the market perception of the Georgia special Senate elections. The results were surprising. Respondents were bullish on both a Republican and Democratic sweep.     As the results of the Georgia Senate race became clear, the analyst writing under the pseudonym Jesse Livermore...

Will Mnuchin and COVID derail the cyclical rebound?

I hope that I haven't offended the market gods. Just after my bullish call for a cyclical recovery (see Everything you need to know about the Great Rotation but were afraid to ask), a number of contrary data points have appeared to cast doubt on the reflation thesis.   The markets were jolted by the...

Buy the cyclical and reflation trade?

The global economy seems to be setting up for a strong recovery. We are seeing a combination of easy monetary policy, slimmed-down supply chains, and a rebound in consumer confidence.     The cyclical and reflation trade is becoming the consensus view. However, there may still be time to board that train. Futures positioning in...

Does the economy even need more stimulus?

House Speaker Nancy Pelosi has set a Tuesday deadline for an agreement for a coronavirus stimulus package before the election. Recent data begs the question of whether more stimulus is even needed.   Last Friday's retail sales print was astonishingly strong and beat market expectations. While retail sales statistics are notoriously noisy, September retail sales...

A valuation puzzle: Why are stocks so strong?

One of the investment puzzles of 2020 is the stock market's behavior. In the face of the worst global economic downturn since the Great Depression, why haven't stock prices fallen further? Investors saw a brief panic in February and March, and the S&P 500 has recovered and even made an all-time high in early September....

How the Fed’s Policy Review received an incomplete grade

It has been over a week since Jerome Powell's virtual Jackson Hole speech in which he laid out the Fed's revised its updates to its Statement on Longer-Run Goals and Monetary Policy Strategy after a long and extensive internal review. There were two changes. one was a shift towards an "average inflation targeting" regime, where the...

Can a bull market begin without the banks?

Earnings season has kicked off with reports from the major banks. The market reaction has been mixed so far. From a big picture perspective, history shows that whenever the relative performance of banking stocks have breached a major support level, such events have usually signaled periods of financial stress and bear markets.     This...

Fun with technical analysis on the 4th of July

On this 4th of July Independence Day weekend, let's try a change of pace and indulge in some technical analysis of a different sort. The behavioral finance basis for technical analysis is the wisdom of the crowds. Francis Galton observed a competition at a local fair in 1906 where about 800 people tried to guess...

The bears are capitulating

Last week, I discussed the professional career risk challenges in this market (see What professional career risk looks like). During these unusual periods of severe bifurcation between valuation and macro risk and price momentum, the investment professional is forced to make a decision based on what he believes the dominant investment regime will be in...

What would a Biden presidency look like?

Joe Biden has officially clinched the Democratic nomination for president, and his odds of winning the Presidency in November have been steadily rising, and he is now at 54% on PredictIt. For the uninitiated, the contract pays off at $1.00 if a candidate wins, so buying the Biden contract at $0.54 implies a 54% of...

The OK Boomer decade

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...