Category Lessons

Zero Sum Game

Trump's favorite word in the dictionary is "tariff". In his view, it just needs a little public relations (PR) help. I don't know about that. Personally, I'm not a fan of tariffs. Over the long-run, history has shown they do more harm to the economy vs help. Better PR won't change that. However, in the very near-term (24-36 months) - they can be seen to add jobs and create benefits for the protected industry(s). From that lens, people are mistaken to believe they're working (as that's what's visible). But what about the unseen? To help explain, I'll draw on the timeless work of Adam Smith. The protectionist policies of today are not only reminiscent of those in the seventeenth and eighteenth centuries -- but are arguably worse in their complexity and scale.

The Big Tech Unwind

Can the market let the air out of the bubble without consequence? The answer relates to my post on economic cycles. That is, panics and busts only occur after booms and bubbles. But what a minute - are you saying this is a bubble? My answer to that is look at where we are in relation to the long-term mean. That's your litmus test. For example, if we simply take the S&P 500 - it trades at ~22x forward earnings (on the assumption earnings growth this year is 12%). The 10-year average forward PE for the S&P 500 is ~18x (mostly as a function of long-term yields trading near zero). And the 100-year forward PE average is closer to 15.5x. And if we look at tech specifically - valuations are even more extreme.

Wall Street Cheer a “Strong Jobs” Report…  Should They?

Wall St. cheered a perceived 'strong' monthly June jobs report. The economy added 206K jobs last month - however the unemployment rate moved to 4.1% - its highest level in 2 years. Here's the thing: there was a lot of weakness in the labor market - with most of the jobs coming from government. In addition, April's job gains were revised lower by 111K. And May was revised lower by almost 60K. I think there is material underlying weakness (reflected in slower Real GDP and PCE) and perhaps enough for the Fed to start cutting rates in September or November.

What Does Kolanovic See That Others Don’t?

Most analyst year-end S&P 500 targets range from 4200 to 5600 for equities; and 3.00% to 4.75% for 10-year yields. My guess is we will land somewhere in between these zones. On the whole, it's fair to suggest Wall Street feels 'comfortable' with holding equities. Consensus year end targets average 5400 - which tells me most don't expect stocks to do much between now and year's end. More important - they don't expect stocks to lose any ground. This post expands what I think is the single most important variable (and risk) with these forecasts: the relative health of the US consumer and their ability to continue spending.

Buying is Easy… Selling is Hard

Do you consider yourself a "good" or "bad" investor? For example, one might say a good investor is someone who beats the returns of the Index over a long period (10.5% annualized). Beating the Index over the long-run is difficult to do... very few fund managers are able to do it. But what if I framed the question this way: (i) bad investors think of ways to make money; vs (ii) good investors think of ways not to lose money. Which one best summarizes your approach to speculation? Of the several thousand posts I've written the past 13+ years - this is arguably the most important question you could ask. If you understand the gravity of this distinction... you have a good chance of succeeding.

Is the Market “Euphoric”?

It's that time of year... where "Sell in May and Go Away" makes its typically annual appearance. Personally I don't give it much weight... basically none. Who invests with the timeframe a few months? Not many that consistently make money. But therein lies the rub - this saying is only relevant as a function of how you choose to invest. Your time horizons are likely very different to mine. This post will offer background where the adage comes from. From there, I will try and answer the question of whether the market is "euphoric". And finally, I'll share some names that I've been adding to.... it's not NVDA.

When Is the Right Time to Buy Bonds?

Treasury yields are surging... the U.S., 10-year treasury - a rate which every financial asset is tied to - has ripped back above 4.60%. Credit card rates, home loans, auto loans... you name it... have all increased. The last time UY.S. 10-year yields traded above 4.60% - the S&P 500 was ~20% lower. From mine, the divergence is a head-scratcher... however, what I can say is risk assets have a tougher time advancing when yields push beyond this zone. The question is - is now a good time to increase bond exposure? I think the answer is yes.. and here's why

S&P 500 +10.1% for Q1 – Can it Continue?

If you asked me at the end of December whether I thought the S&P 500 would be up ~10% at the end of the first quarter this year - I would have said "unlikely". And yet here we are. With the promise of (coming) interest rate cuts and continued strong economic growth (implying growth in earnings) - US equities have arguably exceeded most analysts full year targets. For we have already exceeded all but 1 of 18 full year S&P500 forecasts "experts" made at the beginning of the year.

Will Powell Heed Volcker’s Wisdom?

Next week Fed Chair Jay Powell will deliver the FOMC's March statement on monetary policy. Interest rates are not expected to change - however his sentiment might. When we last heard from Powell - he was dovish - igniting a rally in risk assets. However, with inflation heating up and a tight job market - Powell may perform another pivot. Markets expect three rate cuts this year - those expectations might be dialed back to just two.

Something Doesn’t Add Up… 

It's Nvidia's world and we're living in it (if you believe the stock market). The S&P 500 (and Nvidia) recorded all new highs post the AI chip maker's earnings. Be careful paying too much. The rapid rise in Nvidia's market cap has only seen the market narrow further. And from mine, that makes it more subject to both volatility and risk. Deutsche Bank’s Jim Reid dimensioned the risk another way. He shows how the Top 10% of stocks in the S&P 500 constitute ~75% of the total capitalization. We have not seen that since 1929! The only other time we saw something similar was the dot.com bubble...