Revisiting the anatomy of a bubble

Jeremy Grantham’s recent piece, Let the wild rumpus begin, argued that the US is in its 4th “superbubble” of the last 100 years and is in its final stages.  This inspired us to refresh our bubble framework (below, taken from our 2017 blog post). ...

Cyclical headwinds vs structural tailwinds

It’s difficult to know how to invest with building liquidity and growth headwinds while structural trends remain positive.  For equities, one of the simple regime indicators we use tracks moving average crossovers on S&P 500 earnings.  Whenever the 10-week...

Rotating market leadership

Market leaders tend to rotate after a recession and enjoy a multi-year period of outperformance. The GFC ushered in a decade of real asset underperformance vs financial assets (proxied by commodities vs bonds), which has reversed after the lockdown recessions. Source:...

Structural tailwinds for US homebuilders

The 2010s marked a lost decade for US homebuilding.  The number of homebuilders declined 50% between 2007 and 2012 in the US, and the GFC caused a massive hole in personal savings and equity, meaning that fewer people could afford a home.  This drove a shift towards...

Lessons from past market tops

We looked at 3 major tops (1929, 1973 and 2000) suggests tops are immediately preceded by 1) sustained monetary policy tightening and 2) divergence of surging bubble stocks vs the average stock moving sideways/falling. 2021 has been characterized by late-cycle markets...

The “cause of” and “solution to” rising prices

Industrial concentration in the US economy has been a persistent theme over the past 3 decades.  Corporate profits’ share of GDP has shifted up to a higher level compared with any other time in the post-war period. Source: Bloomberg, Macrobond, Variant...

Phases of a bull market

A bull market can usually be classified into 3 phases.   Phase 1 is where the “easy” gains occur, there is widespread skepticism towards the equity rally and valuation multiples surge in anticipation of the coming recovery in earnings. Source: Bloomberg,...

Capital Gains Tax: announcement effects and sector rotation

President Biden’s 2022 fiscal budget includes proposals for a 39.6% (43.4% with surtax) top long-term capital gains tax rate (in the US long-term capital gains apply on investments owned for 12 months or longer). We don’t know what the final bill will look...

The Importance of Equity Duration

We have seen much commentary that if US 10y yields go back to 2.5% or 3.0%, then equity markets suffer.  We prefer a different way to looking at the problem.  The key is what inflation is doing alongside any move in nominal yields. The below chart shows the % of the...