At @asr_london, we believe that you will see another down year for US (and Global) Equities in 2023. Two down years in a row are unusual (outside world wars), but a not unheard of... 1/8
There is no single indicator that has predicted multi-year down markets... apart from World War... but rapidly rising inflation or policy rates have played a role... 2/8
In 1929 rates were raised into slowing inflation; in 1973, rates were raised into rapidly rising inflation but real rates were negative; while in 2000 rates were raised and inflation picked up - but real rates remained positve... 3/8
Multi-year down markets tended to see recessions in both activity and earnings during the second year of the market downturn (exactly what we @asr_london are forecasting for 2023). 4/8
Extended valuations tend to play a role in multi-year down markets... but we find that the detrended Bond/Equity yield ratio seems to give the best signal - but even this appears 'necessary but not sufficient'... 5/8
Extended market cycles (in age and scale) also yield multi-year declines... if we exclude the 'biological' pandemic bear market (short-lived as looser policy extended the cycle), the Bull market ending Jan-2022 lasted almost 13 years and saw a 5-fold rise in Equities 6/8
A final word of warning... previous multi-year bear markets (other than 1913-14) saw the second year deliver larger losses than the first. 7/8
If you are a professional investor and would like to see the in-depth analysis behind why we at @asr_london are suggesting clients are maximum underweight Global Equities and maximum overweight Cash, visit absolute-strategy.com and sign up for a research trial END
• • •
Missing some Tweet in this thread? You can try to
force a refresh
There has been a lot of focus on the $6trn of cash sitting on the sidelines being able to drive the next phase of this equity bull market…it certainly looks pretty spectacular 1/5
Relative to the size of the US equity market there is nothing unusual about the amount of cash on the sidelines - for either institutions or private investors 2/5
A high level of cash is simply a rational response to the fact that you can get almost 4x the yield of the S&P in cash…3/5
It was great to see that Simon White at @bloomberg @markets used this chart yesterday, linking the yield curve and the VIX... It was one of the first charts that @David_Bowers55 and I built together when we launched @asr_london back in 2006/7 1/5
This is what the yield curve vs VIX chart looked like back in 2007. It was signalling that the VIX would likely rise dramatically - and by the middle of the year this process had already started to happen - it also signalled that worse was yet to come... 2/5
The link between the yield curve and the VIX was one reason that we warned our clients in 2007 that "The Global Liquidity Crisis Will Be a Trillion Dollar Event"... today we worry that the inverted yield curve is also signalling risk ahead - this time for Non-bank Financials 3/5
As a thank you for people's patience while I was away talking to clients, three key charts we flagged to them. Maybe its our lack of imagination, but when we started @asr_london, we never dreamed we would have three macro charts giving signals similar to those seen in 1929! 1/6
2/6 #1 US 10yr Treasury - 3m Treasury Bill Yield Curve It's popular to doubt the usefulness of yield curves, but this is only the forth time in 100 years the Yield Curve has been this inverted: 1980, 1973 and 1929 were the others - they did not end well for US economy or markets
3/6 #2 US Shiller CAPEs and Tobin’s ‘Q’ Ratio - I posted this recently - but just a reminder that the only times, other than today and the Tech bubble, that these 'fundamental' long run valuations were as extended was in 1929