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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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SPECIAL | Excerpt From Dr. Drake's "Early Look" Note This Morning on "The Mom Test" - Bull and bear extra cartoon

...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:

  1. 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)
  2. Global growth is slowing currently and given global leverage and demographic dynamics, slower for longer will remain the prevailing reality
  3. 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.
  4. 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:

  1. Raise some cash
  2. Downshift equity beta exposure
  3. Allocate to long-duration fixed income on pull backs
  4. 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
  5. Or, my Mom's answer:  Buy a bigger mattress?