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....

Are you positioned for the post Great Rotation era?

Is the US stock market in a bubble? Yes and no, according to Ray Dalio of Bridgewater Associates. Using a proprietary technique to create a "bubble indicator", Dalio concluded that "the aggregate bubble gauge is around the 77th percentile today", compared to a 100th percentile reading in 1929 and 2000.     Dalio qualified his...

Outside-the-box risk control = Better returns

After last week's wild market swings, it's time to have a sober discussion about risk control. I know that risk control isn't a sexy topic, but better portfolio risk control can lead to better overall returns.     The framework of analysis will not be the conventional description of risk as it is stylistically shown...

Tech is eating the market

Mid-week market update: I have written about how Big Tech is dominating the market. Here is another perspective of how tech stocks are eating the market. The combined market cap of FANGMAN (Facebook, Apple, Nvidia, Google, Microsoft, Amazon, Netflix) is reached all-time highs and nearing a total of $8 trillion.     The angst over...

How short-sellers can get hurt in a bear market

This is a cautionary tale about the importance of return objectives and risk control. Regular readers know that while my trading model has not be perfect, it has been quite good for swing trading purposes.   So far in the month of October, my main trading account is up 7.1%, while the SPY is -7.1%....

Will diversified portfolios be doomed in the next recession?

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 Trend...

Rebalancing your portfolio for fun and profit

The standard practice among portfolio managers is to establish a rebalancing discipline for their portfolios. A typical process would involve the following steps: Determine the target asset mix, which could change depending on market conditions. Re-balance if: The asset mix weights moves more than a certain percentage, e.g. 10%, from the target weight; or Periodically,...