adriant

adriant

  • Joined: December 24, 2025
  • Articles: 484

A Rational Response or Pavlov’s Dog?

Market consensus is for a soft-landing with at least three rate cuts next year. The market does not expect a recession.This may prove correct (I don't pretend to know) - but there are some chinks in the armor. Readers will know I don't subscribe to a soft-landing. Typically in the lead up to a recession - spectators will generally lean towards it being "soft". Few ever forecast 'hard landings'. For example, if you have unemployment below 4% and positive GDP growth - it's hard to see anything else. But very rarely do things land softly. We've seen one over the past five decades. That's not a high ratio. What's more, soft landings are exceptionally rare after 550 basis points of rate hikes (not to mention over $1 Trillion in quantitative tightening - of which we have no parallel).

People Choose What They Want to Hear

Markets continue their ascent after a blistering November. The Dow and S&P 500 each gained ~9% for the month - in what is typically a seasonally strong time of year. From a year-to-date perspective, the Dow is up 8.5%, the S&P 500 is up ~19% and the Nasdaq up over 35%. The anomaly? 493 of the 500 stocks on the S&P 500 are barely positive for the year (i.e., the equal weighted index). So what's driving the optimism? Simple: the expectation of lower yields and the Fed hitting its terminal rate. This post looks at potential blind spots for the market.

Charlie: More than a Brilliant Investor

"The best thing a human being can do is to help another human being know more" - Charlie Munger. Very few things will change your trajectory in life (and/or business) as much as learning and education.The more you dedicate your time to obtaining knowledge - the better you will be. But take it a step further... the pathway your life takes will be a function of the decisions you make. Which begs the question - how does one make higher-quality decisions and/or fewer mistakes? Charlie Munger offered us a framework of mental models to do just that... this will be his real legacy.

Cautious… But Invested

It's a brave person who is short the market. Probabilities suggest we are headed higher in the near-term. For example, previous episodes of Fed pausing suggests stocks typically gain. My sentiment today is best described as 'cautious... but invested'. To that end, one should always be invested to some extent. And whilst it's always unwise to be completely remiss of the risks -- it would be an even greater mistake not to have some exposure to higher quality risk assets and fixed income (at current yields)

Two Reasons the Fed Could Cut Rates

The latest set of economic numbers support a 'goldilocks' scenario for stocks. For example, durable goods orders continue to fall (a positive for inflation); and employment remains robust (a positive for growth). The question is what could cause the Fed to cut rates mid next year (given this is what is priced in)? I will offer two reasons... both of which I think are unlikely before June.

Why I’m Not Betting on a Soft Landing

With the Fed seemingly on pause and bond yields sharply off their highs - markets are optimistic. Equities have surged the past few weeks - up around 17.6% year-to-date. The S&P 500 added 10% in just 3 weeks! The narrative (as far as I can tell) is we're headed for "soft landing". But can we be so sure? Past experience suggests a "hard landing" is the more likely outcome. And absent other evidence, when the Fed hikes this much (and especially this fast) - we should expect one.

Inflation Trending Lower… But More to Do

Today we received CPI for October. It was slightly softer than expected and continues to (slowly) trend lower. That's good news. However, stocks jumped on the data and feel its enough for the Fed to end further hikes. What's more - the market is now pricing in rate cuts as early as March. That feels like a dangerous (aggressive) assumption... I think there's a lot more work to do. Remember - getting inflation down from 4% to 2% is where the hard work begins. Wage growth for example remains at 4.2% YoY.

Fed Warns, Stocks Shrug

"We still have a long way to go" - that was the not-so subtle warning from Jay Powell this week. After what many felt was a slightly less hawkish Fed Chair last week - sparking an equity rally - Powell attempted to adjust his tone at an IMF event. Was he successful? That's hard to say - as equities seemed to shrug off any warning from the Fed - surging ahead to be up 15% year-to-date. Here's my question: are investors being too sanguine about what's still unknown?

Are Bond Yields and Oil Cracking?

Today was an important day in the bond market. The US Treasury auctioned $40B of 10-Year notes. Coming into the auction - I was worried there would not be a decent bid. For example, if we faced further buyer's strike - these yields were likely to resume their path higher. However, we saw the opposite. The 10-year yield drifted lower. So what does this tell us about future economic growth? Are investors worried? In addition, the price of WTI Crude is also sharply lower... back below US$80/bbl on concerns of weakening demand. Are equities slow to connect the dots - as they are headed in the opposite direction.

For Now, A Slowing Economy is Good News

A weaker than expected October payrolls print sent stocks flying and bond yields sharply lower. The S&P 500 finished at 4358 - a whopping 5.9% for the week. It was the market's best week for the year. Renewed bullish enthusiasm was mostly due to investors betting the Fed is done. And that makes sense. For example, if employment, growth and inflation continue to soften - there's every possibility the Fed has hit its terminal rate. However there is a caveat. Not only will the Fed need softer economic data - they are hoping the bond market continues to keep financial conditions tight (i.e. bond yields stay high)