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Useless Info: Uncertainty Breeds Returns

With the FED having a mandate to hold the short-term interest rate for a prolong period of time and their willingness to let inflation run above 2%, it make us wonder if interest rates would ever tick up.

BCA points out that in the past 30 years, there has been a strong link between major moves in real 10-year yields and the amount o fexcess savings in the economy.

Currently the gross private savings have been very well boosted by the fiscal stimulus but also that people tend to become more prudent when things are uncertain.

As people’s salary regain traction and consumer sentiment recovers, it is likely the savings rate will decline and perhaps yield might start moderating upwards.

I am thinking less about the REITs but more about whether the insurance companies and the finance company can finally have some yield spread to play with so as to earn some interest income. This would change the picture for the financials and insurance company as to whether there is a catalyst for the share price to do well.

BCA have this idea for people to remain overweight global equities in your core positions but it would be good to pair with a portfolio of stocks to short. These are the stocks who are particularly vulnerable if the market corrects.

So the list above is a group of stocks which in their opinion was overbought, have rallised more than 60% over the past 6 months. They also overlay technically and fundamentally (moved far above their fundamentals)

In my opinion, you got to have some strong fortitude to short a list of these things. A lot of them just need some good earnings announcement to really kill the short.

Still, I hope people understand that they are not taking a uni-direction view about the markets but that they have a core portfolio that are long. Misunderstanding this and taking a uni-direction would be akin to a very strong form of betting.

BCA provides some interesting data on the correlation between global uncertainty and US equity outperformance. As you can see, we have gone through a long period of uncertainty, which gets more uncertain as the years went by.

This increase in uncertainty have exacerbated the dollar bull market and market outperformance.

Sometimes, we like to wait until the coast is clear, then we invest. But if you look at this chart, it seems to indicate the higher the uncertainty, perhaps there is a risk premium, and this drives the performance of your portfolio.

You wait until the coast is clear, then it might be the real peak.

President Trump now has Covid-19 and it became a thing that could move markets. The stock market actually came down 1 day. I think him being infected actually signifies that not many places are safe more than anything else.

In anycase, BCA has this very cute statistic.

In modern times, the incumbent party has won the election in every instance in which the president died in office.

It seems folks that are more on the heavy side, runs increase risk of dying from COVID.

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NYU Endowment failed to Capture Much of a Secular Bull Market's Returns - The Portfolio Lessons
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