To The Moon

The chart below is from a post I wrote earlier this year outlining how cycles + valuation signals work in commodities (and how you can design unique valuation indicators like the one I highlighted above to help navigate those cycles).Just like the stockmarket and economy moves in cycles, commodity markets also move in cycles —driven by clear underlying fundamental, macro, and financial cycles.When commodity markets are expensive, producers respond by increasing supply and consumers feel the pinch and often demand softens… prices therefore subsequently decline as supply rises + demand falls.But then it usually goes too far in the opposite direction, prices become too cheap, producers cut back, consumption rebounds, and then prices start moving higher again.A well-designed indicator will con

Remember the “Commodity Supercycle”?Back in 2021-22 a lot of folk were talking up the Supercycle narrative, and for some very good reasons e.g. prolonged underinvestment in supply by commodity producers, structural and thematic drivers of demand such as the energy transition, but also short-term factors like the stimulus-fueled surge in growth, and let’s face it a key driver of supercycle-narratives was just plain fizzy bullish sentiment.Since then we’ve been through a cyclical bear market — not the type of cycle many were expecting, and certainly not very super.But now is not the time to give up on commodities or even to deride the idea of a supercycle, because there are a lot of very good fundamental reasons for commodity prices to go up over the medium/long-term, and a couple of very in

Learnings and conclusions from this week’s charts:1. $.SPX(.SPX)$ is taking a breather after briefly hitting 6000.2. Numerous investor surveys have hit record (bullish)highs.3. Market measures of sentiment show extreme confidence/complacency.4. A clear vibe-shift is underway in economic confidence.5. High growth once is easy, consistently high growth is hard.Overall, the market is taking an inevitable breather after an extended run, and I think one way to reconcile it is if nothing else; just a period of digestion and correction of extreme confidence, optimism, and bullish euphoria (as the data and charts below show). It does mean there are a lot of minds that could change given the right prompt, but in the immediate term the predominant market m

Trumphoria is gripping markets — everyone expects a repeat of the 2016 bull run when Trump first got elected.All the obvious beneficiaries of a Trump presidency have been rallying, while some of the obvious losers have been punished.Conventional wisdom says one “obvious loser“ (i.e. China A-Shares) will suffer under the second coming of Trump, with the prospect of more tariffs, trade-wars, and tough negotiations hanging overhead.The logic is that trade war 2.0 risk and a generally hawkish geopolitical tone across the incoming Trump administration will present further challenges for an already ailing Chinese economy.And there’s probably some truth in that — it’s going to be: not-boring.As things stand right now, China is in the middle of its worst property downturn on record, local governme

One thing I’ve been looking at is the differences/similarities in 2016 vs now — as I commented earlier, it seems a lot of folk are focused on the 2016 election of Trump and the subsequent rally in stocks and concluding something like “this is how stocks usually trade under Trump” (i.e. that one time).But aside from the small sample size, there’s a few key issues; specifically, the background context and starting point in terms of valuation and sentiment is entirely different this time. Case in point below. $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$

Learnings and conclusions from this week’s charts: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2412(ESmain)$ $.IXIC(.IXIC)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $E-mini Nasdaq 100 - main 2412(NQmain)$ $.DJI(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$ $Cboe Volatility Index(VIX)$ Stocks went from de-risking to re-risking this wee

So you’re probably thinking —given the US election is hours away (from the time of writing), that this note is going to be yet another blab of blibber blubber about what to expect with the election…But there’s a couple of things on my mind that I think should also be on your mind. This is note is therefore more bigger picture, more longer-term focused, and I would say much more useful for asset allocators and those who’re not completely caught up in the short-term noise/news.We’re of course talking about asset class expected returns.This is an area that can be a bit controversial because the mechanics of the math with these things tends to result in sometimes deeply contrarian outputs, and hence will often hurt feelings and present dissonance with deeply-ingrained recency bias.For instance

Given all that I mentioned above, and the rather stark reading at the left hand side of the chart (probably the least believable for most people, if I had to guess), I thought it might be useful to share a couple more charts which provide a look at the concepts and inputs/breakdown for the equity expected returns, but also presents some historical context (e.g. how the past 5-years total returns compare to the forward looking return expectations).First, in terms of the components, the equity expected return outputs are the sum of: dividend yield (+buyback yield adjustment) + expected earnings growth + valuation adjustment + USD hedging/FX adjustment (for global ex-US).In other words: income + earnings growth + valuation change. Historically the income part tends to be reasonably steady, th

Learnings and conclusions from this week’s charts:The $.SPX(.SPX)$ slipped -1% in October (making it +19.6% YTD).Pre-election de-risking continued last week.Seasonal tailwinds are on the way.Softer PMIs stand at odds with strong stocks.Stockmarket confidence is extremely (record) high.Overall, as noted last week there does seem to be a sense of caution ahead of multiple event-risk in the week ahead (the election being the big one). Paradoxically this sets the scene for a rally if you just clear that uncertainty out of the road… and into what has historically been a seasonally strong part of the year. But as explored in-depth this week, we are well progressed through the cycle and getting closer to the danger zone of a number of different framework

Credit spreads have dropped to the lowest point since the pre-financial crisis period (a 17-year low!) It echoes the strength in the Stockmarket (and expensive valuations), and paradoxically is both: 1. a sign of strength; and 2. a risk to plan for…First, the good: credit spreads fall when risk sentiment is bullish, the economy is strong, financial conditions are easy, the stock market is rising, and most of all — credit risk is low (at least, current/trailing credit risk).But also, the bad: credit spreads are basically a contrarian indicator, low levels mean “expensive valuations” (mirroring the stockmarket PE ratios), often indicate complacency, and overall lower compensation for taking on credit risk.On that note, what do we even mean "credit spreads"?Credit spreads are the difference b