*** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
Risk Eats Return
How risk management can improve long-run portfolio outcomes
.......... We are not the only researchers to come to these conclusions. A recent paper in the Journal of Finance authored by academics at the University of Rochester and UCLA, "Volatility-Managed Portfolios," also concluded that variance scaling could improve compound returns while reducing risk.
We believe that the best part about this strategy is that predicting volatility is significantly easier than predicting excess returns, which is nearly impossible to do for the S&P 500 on a monthly basis. And the excess returns and improved Sharpe Ratio of volatility-managed portfolios don’t require a counterparty to lose money, which means these benefits are less likely to be competed away. .........
Credit Beginning To Look Like One Of Most Mispriced Asset
Credit spreads are looking increasingly detached to rising leverage, tight global liquidity and recession risk...
Since peaking out in October, spreads have been tightening, but this is increasingly at odds with many other indicators.
The global liquidity environment remains very tight, which pressures spreads wider. Similarly, personal savings have been rising, which at the margin is bad for companies as income is diverted away from them.
My model for credit spreads, which uses these and other inputs, shows they should move wider in the coming months. ......
And this is the ‘debt trap’ that the bottom-90% find themselves in.
Because the rising wealth of the rich fueled cheap debt, malinvestment, and rising asset prices. Causing inequality to grow even wider.
But never forget that when unproductive debt’s involved – fragility grows.
And that’s the problem U.S. households and the economy are now in. . .
“Debt-Trapped” – How Rising Household Debt Always Comes at A Cost
Almost all of the largest boom-and-busts throughout history were driven because of leveraged speculation in assets.
And eventually – when those debt burdens became unsustainable and couldn’t keep pushing asset prices or spending higher – a tipping point was reached. And the bust phase began as asset prices plunged relative to nominal debts; sending deflation rippling through the economy. ..........
Quotes of the Week:
Tchir: There were 4 Fed speakers yesterday as well. My overall sense is that while sticking to the more “watchful” and “data dependent” theme that Powell has been leading with, the mentality is starting to shift away from “disinflation” and back to “inflation resurgence”.
Mac: Three years ago next week, at the start of the crash, the weekend Barron's lead story claimed "It's STILL A Bull Market Everywhere You Look". It was already too late to get out.
Charts:
1:
...10Y still in the range: pic.twitter.com/GtBiSfM07O
— Fibonacci Investing⚡️ (@FibonacciInves1) February 14, 2023
...$QQQ looks like its lost momentum. pic.twitter.com/hoiOP0jYHD
— Fibonacci Investing⚡️ (@FibonacciInves1) February 14, 2023
The recent rally in stocks deviated from liquidity conditions, which have held steady but have not improved. This is just one reason to question whether there is an adequate foundation to support a new bull market. pic.twitter.com/4woQLnWrMB
— Jurrien Timmer (@TimmerFidelity) February 14, 2023
(not just) for the ESG crowd:
Acceleration of global sea level rise imminent past 1.8°C planetary warming, says study
Other Fare:
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