Editor's Note: Below is a special one-time excerpt from today's Early Look written by our U.S. Macro Analyst Christian Drake. (Our CEO and Risk-Manager-In-Chief Keith McCullough typically writes these morning notes.) It offers a small taste of what our longtime subscribers have come to expect from this contrarian product. It's $29.95/month. A dollar a day to keep the grim market reaper away? We think it pays for itself many times over. Click here to subscribe and see for yourself.
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...Last week, I extolled the merits of The Mom Test and its unique ability to bring clarity to an investment thesis. Some readers rightly pointed out that while I described the merits of “the test,” I didn’t actually offer an answer to it.
Here’s the laymen, common sense, sleep-fine-at-night, largely passive management frame-up:
What if I told you:
- We are 76 months into the current expansion (the mean & median over the last century are 59-months and 50-months, respectively. Meanwhile, Fischer’s Fed, is forecasting above trend growth through 2018 – implicitly forecasting the longest expansion ever)
- Global growth is slowing currently and given global leverage and demographic dynamics, slower for longer will remain the prevailing reality
- Policy has proven to be impotent in printing sustainable real growth and the capacity for another large scale and sustained easing and asset purchase campaign is low.
- The market is up 186% off the 2009 lows – it’s been a great run, maybe there’s some modest runway left but the expansion is certainly in its twilight.
Would you:
- Raise some cash
- Downshift equity beta exposure
- Allocate to long-duration fixed income on pull backs
- Buy stocks that look like bonds and/or equities with solid free cash flow yields, relative inelastic demand and pricing power – particularly with a fundamental catalyst, negative sentiment and elevated short interest
- Or, my Mom's answer: Buy a bigger mattress?
