Real PCE: Seeing Around Corners
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by adrian tout
2d ago
As an investor, your job is to carefully assess the risks against the rewards. A large part of that equation is knowing exactly where we are in the business cycle. For example, consider the following questions: (a) do you think we're at the beginning or middle of an economic advance (with more to go)? or (b) do you think we're about to encounter a significant change in direction? and (c) if so, is that change for the better or for the worse? Your answer is very important. It's far better to invest (or take more risk) at the start of the business cycle vs the end. Therefore, how will make that ..read more
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Wall Street Cheer a “Strong Jobs” Report…  Should They?
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by adrian tout
5d ago
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 ..read more
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Why ‘Soft Landings’ Deserve Scrutiny
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by adrian tout
5d ago
What impact will a 'soft-landing' have on current stock valuations And does there need to be a recession to experience a meaningful (e.g. 12%+) decline? My short answer is no. The gist of this post is to remind investors that you don't need a definitive line-of-sight to a potential recession before protecting gains. I say that because recessions are lagging events - which come at the very end of the cycle. By the time they arrive - the economic damage is already done. Therefore, we need to be in front of the curve. Typically in the 9-months leading up to a recession - stocks continue to trade ..read more
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What Does Kolanovic See That Others Don’t?
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by adrian tout
1w ago
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 thei ..read more
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Buying is Easy… Selling is Hard
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by adrian tout
2w ago
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 cou ..read more
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Divergent Signals
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by adrian tout
3w ago
The market is wildly enthusiastic about all things "AI". If you're a company - and you don't have an AI narrative - the market doesn't want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) - but it's a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions - Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street und ..read more
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It’s Fed Week… Market Sees Cuts Coming
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by adrian tout
3w ago
Are rates restrictive? And if they are - how do you know? That's the question the Fed will address tomorrow - but it's not easy to answer. For example, on the one hand there's a (large) cohort who believe the Fed are falling 'behind the curve' - therefore increasing the odds of a recession. They feel that growth risks are to the downside - and do not need to wait for both inflation and employment data to confirm what's ahead. On the other side of the coin - there are those who think we still run the risk of higher inflation if acting too early ..read more
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Is Momentum Waning? More on Why I’m Bullish Bonds into 2025
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by adrian tout
1M ago
As part yesterday's missive - I talked to why I think bond yields are too high. For example, I offered a chart showing the declining trend in nominal GDP growth vs what we see with the US 10-year yield. Economic growth is clearly slowing and yet yields are going the opposite way. Why? Therefore, investors should ask themselves what is the catalyst which will take us back to a 3.0% 'growth' mode (i.e. what we saw over Q3 and Q4 of 2023)? For example, is it the consumer? They make up ~70% of GDP with consumption - however they are mostly tapped out (as we have heard in the latest earnings report ..read more
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Rate Cut Hopes for 2024 Start to Fade 
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by adrian tout
1M ago
Just as market participants were starting to get hopeful rate cuts could be coming - that door was slammed shut. Yields surged opposite a stronger-than-expected monthly payrolls number. Heading into the print - the market was looking for softness in the labor market - with maybe 190K jobs added. Recent data had suggested jobs were slowing - paving the way for the Fed to cut rates as early as July (with a 70% chance assigned to September). As it turns out, monthly job gains were said to be 272,000. That said, there are some ambiguities with the report - with the unemployment rate jumping to 4.0 ..read more
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When the Laws of Probability are Forgotten
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by adrian tout
1M ago
Whilst the S&P 500 posted a negative week - it was a strong month for equities. The world's largest Index managed to add 4.8% for the month - hitting an intra-month record high of 5339. That's four of five winning months to start 2024. Perhaps completely enamored by all things AI (more on this in my conclusion) - investors basically shrugged off sharply higher yields and a series of disappointing inflation prints to push prices higher. What could go wrong? At the end of every month - it pays to extend our time horizon to the (less noisy) monthly chart. And whilst the weekly chart is useful ..read more
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