Thinking About the Unthinkable
As the bond selloff continues, the debt supercycle seems unstoppable, fiscal discipline out of sight and rising inflation a possibility, it’s time to have a tough conversation.
Tweet of the Day (Part Deux)
Positon: None
Tweet of the Day
Position: None
The Market Outlook Remains Poor
Rising global interest rates (a function of inflation, debts and deficits), a continuation of the Iranian conflict (and its impact on producing higher oil prices), sticky inflation and slowing global economic growth (“slugflation“) have recently become a toxic cocktail for U.S. stocks — leading to (as I have noted) a deterioration in market breadth and a rolling over of several leading market sectors’ prices.
With the equity risk premium continuing a year-long contraction and valuations still above the 90%-tile , the outlook for equities remains problematic. (See opener on valuation models coming up.)
Many individual stocks are no longer responding well to better-than-expected profits. which are being buoyed, in general, by non-recurring equity gains and double and triple ordering (in AI-related companies who are “overearning”) — giving credence to “second-level thinking” over “first-level thinking.”
Finally, with the Democratic party leaning left and the Republican party leaning right, politics might begin to weigh negatively on our markets over the next few months. Significantly, with the rising probability that a “left-leaning” Democratic party might make congressional inroads in November’s midterm elections — market unfriendly higher taxes and other anti-corporation policies could be forthcoming.
Position: None
A Global Bond Rout and a Third Central Bank Turns Hawkish
The market is under severe pressure as oil remains elevated and yields are rising everywhere at once.
Subscriber Question of the Day (And My Answer)
From yesterday:
Bco
Doug can you please explain why you like gold.
Dougie Kass
Given the obvious risks associated with fiat currencies, geopolitics, inflation and the general instability of market structure there seems to be a place in most portfolios for some gold.
While I admit to the problem of valuing the intrinsic value of precious metals, the recent price decline may have improved the “margin for safety” and the upside reward v downside risk of this “hedge.”
I have long thought that (as Howard Marks has stated) — gold is like religion, you either believe in god/gold or not.
That about sums up my view – I am not tied to the hip with precious metals but I can see getting some exposure.
Position: Long GLD (M)
‘Slugflation’ Likely Lies Ahead
Position: None
Remember the Broadening-Out Trade? Nobody’s Talking About It Anymore.
The equal-weight S&P is testing its 50-day moving average, small caps are sliding, and market breadth is weakening. The bullish narrative has changed fast.