This Time Is Unlikely Different

Those who read our latest write-ups know that we laid out a bearish case for equities. The two principal reasons for that outlook were extremely expensive valuations and evidence of excessive speculation among investors. Both elements have typically preceded large corrections and even bubbles historically. Nonetheless, we concluded that technicals were intact and likely leading the S&P …

Calm Before The Stock Storm

The cyclically adjusted price-earnings ratio (CAPE) is among the most potent academic finance concepts. It estimated long-term equity returns reliably. 150 years of equity market history is plotted in the first chart below. The broad-based US equity market is currently priced at about a 34 CAPE, which coincided with a negative return during the subsequent …

The Santa Rally Approaches A Halftime Break

Stocks continue to behave unintuitively for most investors as a bubble inflates. We’ve shown various valuation metrics in the past few write-ups here. Fundamentals have not changed as valuations remain stretched and not sustainable. Nonetheless, we made a case to buy equities short-term. The environment remains probably constructive for equities until year-end. However, the risk/reward relationship …

Ride That Wave

Investors feared adverse effects on the global recovery after the coronavirus situation escalated in Europe once again. Consequently, European equities posted their worst performance in three months and dragged the US market lower. Nonetheless, the situation led to an opportunity to buy the dip just as positive seasonality arrives. The Upside Trend Is Intact The …

The Policy Fiasco

Policymakers in most industrialized economies have been on a spending spree during the last few decades. It seems as if governments and central banks want to smooth the business cycle entirely in order to avoid recessions. Despite benevolent intentions, their track record speaks against their actions. Business cycles are a typical characteristic of capitalist economies. …