‘A Reversal Is In Sight’ Stock Market (And Sentiment Results)

I am writing this from Portugal this week, since months ago we had planned a trip to visit Lisbon, Algarve and Sintra. By being in this game long enough, you come to understand that the market and your positions will only go one time. address (below) when you go on vacation! If you work in the business, you're laughing when you read this. When your flight lands on the home runway, the selling pressure is over and the markets recover, leaving you with nothing to do. Pain when you want to play golf, pleasure when you want to work. God has a sense of humor...

Sometimes it's good to leave NY and CT to get some perspective. In short, no one cares about the markets outside of Wall Street! They're living their lives under the sun (I I suppose knowing that sooner or later good companies resolve upwards). Well, that's my comment! But seriously, the time difference is ideal. Play 18 holes before the market opens, get some work done, and then spend time with your family the rest of the day. Rinse and repeat.

As I keep my eye on the markets, it is clear that things have spread downwards and that a reversal is on the horizon. If you're trying to pinpoint the day, I'm landing in Newark on Sunday!

MoneyShow “Internal alternatives”

Today I joined MoneyShow's special virtual segment on alternative asset managers. Thanks to Debbie Osborne for inviting me to:

Here were my notes before the session. You'll see that the presenter took it in a spontaneous direction:

*Tell our audience a little about your company and your investment strategy.

“In simple terms, 'we buy straw hats in winter!'” Durable, quality, predictable cash generating assets when they are temporarily impaired or in disgrace. we usually own 8—12 companies that represent 80-90% of the portfolio, and where appropriate, an overlay of long-term derivatives to boost returns without taking on material leverage. We take Short positions from time to time when the risk is asymmetric in our favor. and we express long premium only when we can limit the risk (i.e. a 1% payout has an EV of 3-5x). As much as everyone wants to be short now, I don't think an environment where the M2 money supply is $3 trillion above the long-term trend is the right environment to do so.

*The low interest rate environment of the past 15 years favored long duration assets such as bonds and growth stocks, while challenging many value strategies. Eighteen months ago everything changed, and in a spectacular way. How has the advent of inflation and a new central bank regime influenced your investments?

The simple answer is that now you have to do BOTH. Last fall, when Tech/Semis were hated and out of favor, we bought large positions in AMZN, GOOGL, INTC. Now that many value names have lost popularity, we are buying names like GNRC, SWK, DIS, BAC, BABA, etc. less time on macro and more time on cash generation/business performance. You wouldn't buy an apartment building or a farm (or any other cash-producing asset) based on this week's report. sale/purchase ratio and level vix Would you do it (suitable example)? We think about business the same way and buy when Mr. Market is in his manic mood.

• Ali and Tom, they're both in Europe. Is the panorama different there?

Europeans are generally more pessimistic. If you want to get depressed, read any SocGen, BNP or CS market strategist (oops!).

• Do you expect a recession in the United States?

I already had it in 2022.

*Please explain how you see the market opportunities establishing themselves over the next 1-3 years. Where are the biggest opportunities and most concerning red flags?

The biggest surprise between now and the end of the year is that the the fall of bonds is coming to an end. Hedge funds are short overcrowdedthe commercials are long. Pension demand will come in to secure a >4.5% return for their long-term liabilities. We also wouldn't be surprised if the central bank intervened, as we are at the "break things" level of returns. The BoJ intervened at last October's lows to defend the yen, markets took off and the dollar plummeted. We wouldn't be surprised to see a reduction in this stock now. This has MAJOR implications: 1) a bond offering and yield compression will help banks, utilities, and mutual funds (all hated as much as tech was last fall). 2) Emerging markets will soar the moment this short-term countertrend rally in the dollar stops.

The framework we will use over the next three years is similar to 2001-2007: massive rally in emerging markets, value and small caps. More moderate returns in technology (but they will work well).

*Shorting stocks is one of the most challenging investment tasks, but it can be very profitable. How would you describe your short selling philosophy? Are there any specific traits or characteristics you look for or evaluate?

Historical multiple well above average, with slower growth and a downward catalyst.

*Some sectors, from banks to biotechs, tend to move quite closely together. Do you typically favor investing long or short in individual companies or entire sectors?

Biotechnology (lottery/basket ticket sector – “offers and medicines as catalysts”), others company by company.

*Looking ahead to the next three to five years, what do you think will be the biggest surprise for mainstream investors?

• He The market is going to go up much more than people expect. due to the housing/family formation of millennials (pig in Python concept).
• China will have one last parabolic rise (like Japan) in the late 1980s before crashing due to demographic debacle.

Overwhelmed by the facts

From @SethGolden on Twitter: “All we're hearing is that the savings rate and excess savings are falling, the consumer is more stressed than ever with student loan repayments starting again in October... and yet, From the second to the third quarter the value of household net assets increased ~$6 trillion, while liabilities only increased ~$500 billion... with lower stock and bond market prices.”

Let's now move on to the short-term view of the General Market:

In this week's AAII sentiment survey result, the bullish percentage increased to 30.1% from 27.8% the previous week. The bearish percentage rose from 40.9% to 41.6%. Retail investors are afraid.

CNN’s “Fear and Greed” dropped from 25 last week to 19 this week. Investors are afraid.

And finally, the NAAIM (National Association of Active Investment Managers Index) fell to 43.01% this week from 54.33% exposure to the stock last week. When the tide turns, the “year-end chase” will be in full force.

Opinion, not advice.