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In our last newsletter written on Friday, we wrote about just how much risk market participants are having to take to target a 7.5% return, mostly due to how low yields are on bonds. The bailout has been that equity markets have performed exceptionally well, but of course now we are starting at valuations that...Read More
I’ve been writing a lot about elevated valuations for equities and the absolutely horrid risk/reward in almost all bonds. I’ve kept the same graphics at the top of this email for the last month as I want to emphasize the importance. We’ve also covered inflation, which is rearing its ugly head, with the September PPI...Read More
Today the Case/Shiller housing price data came out and it showed prices up nearly 20% YoY. Brent crude oil touched $80 per barrel and is on course for its best month since February. Treasury yields have risen quite dramatically over the last week, with the 10-year now above 1.5%, the highest since June. Natural gas...Read More
Rob Arnott of Research Affiliates is one of the best investment strategists around. He wrote a fantastic article on the opportunity in value investing, so instead of going on about it, I’m just going to let you read it to get a good grasp of the opportunity in front of us. Here was one quote...Read More
Global markets have sold off pretty hard to start the week. Most of the narrative surrounds the Chinese property market and one of their largest developers, Evergrande. China’s government is clamping down on leverage and demanding many industries to buy in, literally, to their social objectives via cash “donations”, cheaper housing, etc. Both the Shanghai...Read More
Interest rates are without a doubt one of the most important drivers of investment returns, if not the most significant. Warren Buffett has mentioned in the past that there is almost a reverse gravitational impact of interest rates, in that lower rates tend to raise equity valuations. Conversely, higher interest rates tend to pressure...Read More
The image above shows the S&P Growth/Value ratio. As you can see, this ratio has hit a new marginal high, to an all-time record. This means that the valuation spread between growth and value has never been more extreme. Interestingly, we saw a similar pattern occur in 2000, right before the Nasdaq began...Read More
Today the August jobs report came out and was quite disappointing. The U.S. only added 235,000 jobs, which was well short of expectations that were for over 700,000 new jobs. Fears regarding the Delta variant likely had a role in this big miss. Many businesses I’ve talked to have expressed immense frustration about a lack...Read More
We are beginning to see a bit of increasing volatility in equity markets arise, as concerns around Covid-19 and the Delta variant have caused increases in positive test results and restrictions, albeit on a far smaller basis than what occurred last year. We’ve been writing about the market getting a bit ahead of itself for...Read More
Wall Street, like many other industries, is designed to sell you what you think you want. It is like a candy store offering you a wide variety of delectable offerings, that while tasty, might not be best for your health. Good investments don’t need massive promotional campaigns to sell prudent investors. Usually a paragraph or...Read More
2020 was a truly unique year from a stock market perspective in that the most expensive stocks got more expensive, while the cheapest stocks got cheaper. All of this was in spite of the year starting with the spread between value and growth already at near-record levels, with many astute investors betting on mean reversion. ...Read More
Today the U.S. consumer prices numbers were released. The numbers topped forecasts significantly, increasing by 0.8% from the prior month, reflecting gains in nearly every major category. To put it into context, the gain in the overall CPI was twice as much as the highest projection in a Bloomberg survey of economists. It is clear...Read More
We saw a little bit of volatility the last few days, as an overleveraged hedge fund blew up spectacularly. It was one of the largest blowups in history (over $50 billion) and despite owning some pretty good positions, being leveraged 5-1 almost always assures disaster at some point, unless you are exceptionally lucky, and this...Read More
Volatility has come back into the equity markets, driven by rapidly increasing Treasury yields. In fact, since the vaccine data came out towards the end of last year, Treasury Bonds are down 27.7%, meaning yields are up. This has coincided with value stocks and financials going on a massive rally and outperforming peers, after a...Read More
There have been a few interesting market developments the last few days. 10-year Treasury yields have increased to levels around where they were last year at this time, before the pandemic and lockdowns had really been felt. The $1.9 Trillion stimulus package seems to be getting closer to getting done. Inflation expectations are ticking up...Read More
