A Generational Mean Reversion is now Underway
Last week I posted my long-term perspective of the SPX cash market from inception.
This is the reverse of that.
I am not an economist. I'm a pattern analyst and trader. Nonetheless, as a student of the economy, I find that rarely do fundamentals align with a technical forecast. I try to encourage my members to abstain from applying linear thinking to trading the markets. Case in point was the recent release of the CPI report. Prior to the release of that report CNBC contributor, Fundstrat Partner and America's favorite perma bull, Tom Lee, was quoted as saying...
"Investors should expect a "sizable rally" in the stock market following the Thursday release of the July CPI report", according to Fundstrat's Tom lee.
Post CPI release, the report was fairly in line with expectations, but the market sold off, and continued to sell off. There was no massive stock market rally post CPI release. How did that make sense? It's easy to proclaim bullish calls since the last 90 years in the stock market has been pretty much a 45-degree angle up from left to right on a chart. Statically, being bullish was good for business, attracts new clients, and no one likes a pessimist.
The time horizons of the two financial disciplines (Fundamental vs. Technical) are typically not aligned...unless those time horizons are long... very long. A long time horizon doesn't suit traders, they suit investors. But the more I delve into long term charts, the more I reflect on how this affects me, my family, and the generations to come.
I have shared my longer term perspective on the SP500 with my followers many times. I rarely, if ever, look at bonds. I don't trade them, and in terms of making a paycheck, my time is better spent elsewhere. Except this morning I decided to look at the 10-year bond yield. To me it's just another data point supporting my overall thesis that the markets are beginning a super cycle event that will play out over the course of the next couple decades.
On a recent conference call with members, I remarked that I received a direct message from a member who complained I was too bearish. I then apologized to attendees on the call because it is not within my nature to be pessimistic, or someone mired in doom and gloom. Shout out to Nouriel Roubini. But I concluded by showing my 150-year analysis of the SPX cash market on my screen via Zoom and concluded, "Unfortunately for the duration of the time you will ever know me, I will be bearish".
The above chart is a typical pattern that will play out. I cannot over emphasize that the pathway outlined above is run of the mill. Nothing about the above should shock any technician. This would be the same pattern outcome on any financial instrument given the above price action...it just happens to be the 10y bond yield. But my foray into the 10y bond yield chart has me thinking the following answers apply to the below questions.
Will mortgage rates come down in the short term so I can buy a house?
The chart above suggests in the intermediate term, yields will continue to rise into early to mid-2024 before retreating somewhat. However, if my analysis is correct...the areas of where they are now are going to be areas of short term mean reversion back up. It is from our current rate, that all subsequent yield rises will draw support from. So, my response to that question is, the time to buy a home will not be much better than right now in my life-time...it will only get incrementally less efficient to hold such a long-term loan.
With $5-6 trillion in money market funds (so called on the "Sidelines") how could the stock market decline by much with so much money available to potentially prop it up?
The above chart tells me the competition for cash and cash equivalents on a risk adjusted basis has not been this disadvantaged towards the stock market since the financial crisis of 2008. In my opinion, that disadvantage will only incrementally get worst. Cash will not be deployed into stocks like generations before based on competition and the risk associated. P/E ratios, book value...none of that is front and center as it pertains to those trillions of dollars. Cash being deployed now will always be gauging the associated risk/reward. That factor makes this different from all other equity market downturns.
Although so much of what I am uncovering manifests itself into our daily lives over the course of years and decades, and not weeks and months...therefore, we’re more likely to embrace apathy vs panic.
Nonetheless, I do view many markets through the lenses of long term mean reversion. I am still evaluating how that perspective can best be converted into action for long term benefit. I’m optimistic I have some time…(see I’m not entirely negative).
Best to all,
Chris
This is the reverse of that.
I am not an economist. I'm a pattern analyst and trader. Nonetheless, as a student of the economy, I find that rarely do fundamentals align with a technical forecast. I try to encourage my members to abstain from applying linear thinking to trading the markets. Case in point was the recent release of the CPI report. Prior to the release of that report CNBC contributor, Fundstrat Partner and America's favorite perma bull, Tom Lee, was quoted as saying...
"Investors should expect a "sizable rally" in the stock market following the Thursday release of the July CPI report", according to Fundstrat's Tom lee.
Post CPI release, the report was fairly in line with expectations, but the market sold off, and continued to sell off. There was no massive stock market rally post CPI release. How did that make sense? It's easy to proclaim bullish calls since the last 90 years in the stock market has been pretty much a 45-degree angle up from left to right on a chart. Statically, being bullish was good for business, attracts new clients, and no one likes a pessimist.
The time horizons of the two financial disciplines (Fundamental vs. Technical) are typically not aligned...unless those time horizons are long... very long. A long time horizon doesn't suit traders, they suit investors. But the more I delve into long term charts, the more I reflect on how this affects me, my family, and the generations to come.
I have shared my longer term perspective on the SP500 with my followers many times. I rarely, if ever, look at bonds. I don't trade them, and in terms of making a paycheck, my time is better spent elsewhere. Except this morning I decided to look at the 10-year bond yield. To me it's just another data point supporting my overall thesis that the markets are beginning a super cycle event that will play out over the course of the next couple decades.
On a recent conference call with members, I remarked that I received a direct message from a member who complained I was too bearish. I then apologized to attendees on the call because it is not within my nature to be pessimistic, or someone mired in doom and gloom. Shout out to Nouriel Roubini. But I concluded by showing my 150-year analysis of the SPX cash market on my screen via Zoom and concluded, "Unfortunately for the duration of the time you will ever know me, I will be bearish".
The above chart is a typical pattern that will play out. I cannot over emphasize that the pathway outlined above is run of the mill. Nothing about the above should shock any technician. This would be the same pattern outcome on any financial instrument given the above price action...it just happens to be the 10y bond yield. But my foray into the 10y bond yield chart has me thinking the following answers apply to the below questions.
Will mortgage rates come down in the short term so I can buy a house?
The chart above suggests in the intermediate term, yields will continue to rise into early to mid-2024 before retreating somewhat. However, if my analysis is correct...the areas of where they are now are going to be areas of short term mean reversion back up. It is from our current rate, that all subsequent yield rises will draw support from. So, my response to that question is, the time to buy a home will not be much better than right now in my life-time...it will only get incrementally less efficient to hold such a long-term loan.
With $5-6 trillion in money market funds (so called on the "Sidelines") how could the stock market decline by much with so much money available to potentially prop it up?
The above chart tells me the competition for cash and cash equivalents on a risk adjusted basis has not been this disadvantaged towards the stock market since the financial crisis of 2008. In my opinion, that disadvantage will only incrementally get worst. Cash will not be deployed into stocks like generations before based on competition and the risk associated. P/E ratios, book value...none of that is front and center as it pertains to those trillions of dollars. Cash being deployed now will always be gauging the associated risk/reward. That factor makes this different from all other equity market downturns.
Although so much of what I am uncovering manifests itself into our daily lives over the course of years and decades, and not weeks and months...therefore, we’re more likely to embrace apathy vs panic.
Nonetheless, I do view many markets through the lenses of long term mean reversion. I am still evaluating how that perspective can best be converted into action for long term benefit. I’m optimistic I have some time…(see I’m not entirely negative).
Best to all,
Chris
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