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Weekly Market Pulse: I Have Questions

The wise man is one who knows what he does not know. – Lao Tzu or Socrates or neither   It ain’t what you don’t know that gets you in trouble. It’s what…

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This article was originally published by Alhambra Investment Market Research

The wise man is one who knows what he does not know.

– Lao Tzu or Socrates or neither


It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.

– Mark Twain or Josh Billings or Artemus Ward or none of the above


Stocks are at all-time highs, credit spreads are as narrow as they’ve ever been, and someone just paid $24 million for some cartoons of apes:


LONDON, Sept 9 (Reuters) – A set of 107 non-fungible tokens (NFTs) representing images of cartoon apes sold for $24.4 million in an online sale at Sotheby’s auction house on Thursday, as the market for the niche crypto asset continues to heat up.

The images were part of the “Bored Ape Yacht Club” collection of NFTs – a set of 10,000 computer-generated cartoon apes, made by the U.S.-based company Yuga Labs. Owners of the ape NFTs become members of an online club.

Well, my goodness. I mean there are only 10,000 of these things so get’em while they’re hot, I guess. And you get to be in a club! That, to me, is the artistic statement of these pieces but it says a lot more about the buyers than the creators. It is the digital equivalent of Fountain by R. Mutt. Marcel Duchamp used a urinal to represent his disgust at world war – and changed the art world forever to boot – and it may be that the creators of many of these NFTs are expressing their disgust as well, maybe at inequality or materialism or systemic racism or something else. Or maybe they are just taking advantage of the situation. But it seems obvious, at least to me, that the artistic nature of the pieces lies in the buying, not the creating. And the higher the prices rise, the less likely the buyer is to get the joke. One can’t help but wonder at the supply of fools today; there are days I think it might be infinite.

You can go read the story at Reuters if you want to see a picture of said bored ape. It is exactly as stupid as it sounds although it may be worth it just to get in the club to see what you can sell to the other members. Stocks near all-time highs isn’t exactly news these days and most people don’t even know what credit spreads are but, along with the bored ape idiocy, they are all indications that investors these days maybe don’t have all their oars in the water. Rational investors may be an endangered species. Or so it seems. One of the oddest things about the current state of markets is that the pool of pessimists continues to be well-populated.

Skepticism about the state of the economy is growing and with some justification. But every negative economic news item is met with an avalanche of Tweets and articles and podcasts and TikTok videos telling us why this latest piece of news is the one that will – finally! – tip the markets into the crash that we all know is coming. And when it doesn’t happen, the tweeters and pundits and podcasters find the next chart of something that has never happened before to share with us lucky few who have access to social media, the next time the world as we know it is sure to end.

Away from the permas – bulls and bears – the real world isn’t neat and orderly and predictable. I do not consider myself wise but I do know what I don’t know and it is a long list. It’s why I spend a lot of time asking questions, for most of which I don’t have answers. Here are a few I’m pondering now, most of which have something to do with how the economy will perform in the future:

Will the economy continue to slow? The current slowdown was telegraphed by the bond market – as it usually does – and we’re now in the midst of it. There are any number of reasons to think the economy will just keep fading all the way back to the pre-COVID trend of about 2%. But the 10-year Treasury yield appears to have made a bottom in early August at 1.13% and is now at 1.34%. The 10-year TIPS yield has also risen from its lows but is still negative. The copper/gold ratio is still stuck in a range but has recently turned higher, approaching the high for the cycle. If we trusted the bond market when it was peaking, I think we have to trust it now too.

Will Delta be followed by another wave in the winter? That seems to be the consensus but that is probably a result of our collective experience of the last 18 months. Based on recent data from the CDC, around 80% of the US population has either natural immunity (because they’ve had it already) or are vaccinated. Is that sufficient for some kind of herd immunity? I don’t have an answer to that but it is certainly not an open and shut case for a winter wave. If Delta does die out, will the economy reaccelerate? I would think so as there is still a lot of pent-up demand for travel and other in-person services. The holidays could be a frenzy of travel.

What are the long-term impacts on the labor market from COVID? There has been a lot of commentary about how we’ll never go back to full-time, in-the-office, type work and I think that is largely accurate. But there is more going on here than just work from home. How we view work may have changed permanently. GDP has already recovered its pre-COVID high but with a couple million fewer workers. Job openings get a lot of press but the quits rate is at an all-time high too. Maybe that has changed (the latest data is from July) but it shows either a lot of confidence or a lot of chutzpah. It may be the latter considering that new businesses are being formed at rates about 50% above the pre-COVID level. How will migration within the US during COVID affect regional economies? Will large cities continue to dominate GDP or will it get spread more evenly across the country? Does that matter? I think it does. I don’t think we’ll know COVID’s true impact on the labor market or the economy as a whole for years, maybe decades. And I don’t even know if the impact will be positive or negative though I lean to the former because we’ve seen this before. There were clear innovation surges in the late 1800s during the long depression and also in the 1930s during the Great Depression.

What, if anything, does this chart mean?

Those are core capital goods orders which have just broken out of a 20-year holding pattern. Will productivity follow? If this keeps rising it may signal that we are finally past the overhang of the dot com boom of the late 90s. This is obviously a small part of the economy $76.5 billion out of a $22.7 trillion economy. But this is the real multiplier in the economy, not money creation or government spending.

Are stocks really as expensive as we think? What if Delta does fade away and what if we don’t get a winter wave and what if those new company formations and rising capital goods orders raise productivity? What if we pile a trillion or more in infrastructure spending on top of that? What if the rest of the world economy also rebounds? Could we be looking at more than just a temporary surge in post-Delta activity? What if we get a couple of years of above-average growth? What will that do to corporate earnings? Are P/Es more reasonable than they appear? Or do current prices already reflect that future growth? Could stock markets just slow their ascent or stagnate for a while without crashing? How far could interest rates rise before having a significant negative impact on the economy? Would higher rates reduce P/Es even if earnings are growing rapidly? Could multiple contraction outpace earnings gains?

Where are we in the business cycle? I don’t see any reason to believe we are near recession. From yield curve to credit spreads to CFNAI none of our recession warnings are flashing right now. Assuming no further shock that puts us back in recession quickly, this cycle would seem to have more to go. How much? The last cycle was not very fast but lasted 11 years with calls for its demise at every turn. If government intervention in the economy compresses the amplitude of the economic cycle – and it generally does – it should also increase the wavelength. In this case, we have large government intervention and the private sector potential of capital spending and entrepreneurship. We might get a longer cycle and one whose growth exceeds the last cycle.

Why is China turning inward? Some of the recent moves by China are frankly a little disturbing. They are systematically closing themselves off from foreign capital. Are they preparing their companies for a day when they won’t be able to access foreign capital? That is a scary thought even if I think the obvious (taking Taiwan) is highly unlikely. But a lot of wars have started on things that people deemed highly unlikely. The flip side of this fear is that I wonder if Chinese stocks might not be a bargain right now. Not exactly blood in the streets but what reaction would you have if someone close to you said they were buying Chinese stocks heavily? Concern? Horror? No one said being a contrarian was easy.

What will become of QE and all the other Fed facilities? QE’s track record on economic growth is pretty lousy. You could make the argument that the last decade of 2% average growth would have been worse without it but that is impossible to prove and seems doubtful. There are big debates ongoing about its impact on markets (please don’t send me any Fed balance sheet/S&P 500 charts) but I find it hard to reconcile little economic impact and great stock market impact. QE is a swap of a useful asset (T-Bill, note, bond) for one that has little utility (reserves). There is a great argument there about why QE is actually deflationary. But if all that is true, why are stocks so expensive? Why is there so much speculation across multiple markets? Is there a transmission mechanism to markets but not to the real economy? That seems highly unlikely. Are we missing something in our analysis of QE? And if QE is the reason stocks are so high in the US, why hasn’t it had the same impact on Japanese or European stocks? What about fiscal policy? Does the huge amount of deficit spending mean QE has a bigger impact (monetizing debts) now? I know what we (Alhambra) think we know on these subjects but I worry that there is something we don’t know or won’t know until it has had an impact we don’t expect.

That’s just a sample of what has been going through my mind recently. There is an entire section of my brain dedicated to thinking about how politics might impact things over the next year and after the mid-terms. I don’t generally think that politics has as much impact on the economy as we think but in this case, the numbers are pretty darn big and the policies pretty intrusive. Of course, Donald Trump wasn’t exactly a “let the market sort it out” kind of guy either so maybe my concerns are overblown. There are also a lot of market-specific questions such as the value vs growth debate and the active vs passive debate (which we tend to straddle). And what about environmental policy in the Biden administration? Will US energy production recover to the pre-COVID peak? Or fall more? What about anti-trust policy? Will the Biden administration really go after the tech giants? If so, how?

There are always a lot of unknowns for an investor. We just can’t possibly know enough to predict how the economy will do in the future except in broad terms. And even if we knew what the economy was going to do, it is doubtful we could predict the market reaction with much specificity. All we can really do is try to determine where we are right now. Right now that means growth in the US that is slightly above trend but slowing. It means record earnings for the S&P 500 last quarter at a level 29% above the Q4 2019 peak and 26% above the previous all-time high in Q3 2018. It means US large-cap stocks trading at very high multiples versus history and foreign markets while small and mid-cap stocks trade at pretty reasonable valuations. It means a 10-year Treasury yield that is down from 1.75% to 1.34% today but roughly double where they were a year ago. It means copper that recently hit an all-time high and gold that peaked a year ago and is down 14% since then. It means the dollar trading near the bottom of a range that has prevailed for nearly 7 years. It means Europe rebounding and China very obviously slowing. It means Taiwan, Korea, and Japan stocks performing well, and Latin America flailing as it usually does.

What does all that add up to? In my view, it adds up to a defensive tactical stance as we wait for more information about the economy and the direction of the dollar.

The data released last week was unsurprising. Inflation is higher than expected, new jobless claims are falling and there are a lot of job openings.


It could be an interesting week for data with more inflation numbers, two important regional Fed surveys, industrial production, retail sales, and the preliminary look at consumer sentiment for the month.



It was one of those weeks when nothing works. All the major asset classes were down last week but Japanese stocks continued their recent hot run. Growth beat value in large-cap but everything was down.



There really wasn’t any kind of trend by sector last week. Real estate and industrials were hardest hit but health care and utilities were also down hard.



I think it is our job as investors to ask questions, to be skeptical about the conventional wisdom. I don’t know what the economy or markets or the Fed or Joe Biden or Congress will do over the next year or two years or three years. I don’t know what all those people quitting their jobs are thinking and what they plan to do in the future. I don’t know what Xi Jinpeng will do next, what company he will decide is not taking his shared prosperity seriously enough. I don’t know whether to take bored ape NFTs seriously…well, actually I think I do know that one.

Never think you have it all figured out, that you know what is coming. You don’t. But you can ask questions and, if you are patient, the market will provide answers.



Joe Calhoun



Research Review | 17 Sep 2021 | Financial Shocks And Crises

Banking-Crisis Interventions, 1257 – 2019 Andrew Metrick and Paul Schmelzing (Yale) September 7, 2021 We present a new database of banking-crisis interventions…

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Banking-Crisis Interventions, 1257 – 2019
Andrew Metrick and Paul Schmelzing (Yale)
September 7, 2021
We present a new database of banking-crisis interventions since the 13th century. The database includes 1886 interventions in 20 categories across 138 countries, covering interventions during all of the crises identified in the main banking-crisis chronologies, while also cataloguing a large number of interventions outside of those crises. The data show a gradual shift over the past centuries from the traditional interventions of a lender-of-last-resort, suspensions of convertibility, and bank holidays, towards a much more prominent role for capital injections and sweeping guarantees of bank liabilities. Furthermore, intervention frequencies and sizes suggest that the crisis problem in the financial sector has indeed reached an apex during the post-Bretton Woods era – but that such trends are part of a more deeply entrenched development that saw global intervention frequencies and sizes gradually rise since at least the late 17th century.

Can Financial Soundness Indicators Help Predict Financial Sector Distress?
Marcin Pietrzak (IMF)
July 23, 2021
This paper shows how the role of Financial Soundness Indicators (FSIs) in financial surveillance can be usefully enhanced. Drawing from different statistical techniques, the paper illustrates that FSIs generate signals that can accurately detect, with 4 to 12 quarters lead, emerging financial distress—as measured by tight financial conditions.

Financial Crises: A Survey
Amir Sufi (U. of Chicago) and Alan M. Taylor (U. of California)
August 17, 2021
Financial crises have large deleterious effects on economic activity, and as such have been the focus of a large body of research. This study surveys the existing literature on financial crises, exploring how crises are measured, whether they are predictable, and why they are associated with economic contractions. Historical narrative techniques continue to form the backbone for measuring crises, but there have been exciting developments in using quantitative data as well. Crises are predictable with growth in credit and elevated asset prices playing an especially important role; recent research points convincingly to the importance of behavioral biases in explaining such predictability. The negative consequences of a crisis are due to both the crisis itself but also to the imbalances that precede a crisis. Crises do not occur randomly, and, as a result, an understanding of financial crises requires an investigation into the booms that precede them.

Macroeconomic and Financial Risks: A Tale of Mean and Volatility
Dario Caldara (Federal Reserve), et al.
August 2021
We study the joint conditional distribution of GDP growth and corporate credit spreads using a stochastic volatility VAR. Our estimates display significant cyclical co-movement in uncertainty (the volatility implied by the conditional distributions), and risk (the probability of tail events) between the two variables. We also find that the interaction between two shocks–a main business cycle shock as in Angeletos et al. (2020) and a main financial shock–is crucial to account for the variation in uncertainty and risk, especially around crises. Our results highlight the importance of using multivariate nonlinear models to understand the determinants of uncertainty and risk.

Pre-crisis conditions and financial crisis duration
Thanh Cong Nguyen (Phenikaa University)
July 3, 2021
This paper examines how pre-crisis conditions affect the duration of different types of financial crises using a data sample of 244 financial crises in 89 countries over the period 1985-2017. Results from our parametric survival analysis show that the duration of any type of financial crisis is longer for countries having higher levels of public debt prior to financial crises, whereas it is shorter for countries characterised by higher pre-crisis levels of (i) current account balance, (ii) international reserves, and (iii) institutional quality. Similarly, while pegged exchange rate regimes are associated with a longer duration of financial crises, majority governments help countries emerge faster from crises. Moreover, banking and currency crises tend to be more prolonged when preceded by higher credit growth. We also find a positive effect of pre-crisis fiscal balance on the probability of crisis ending, and it is noteworthy that this effect is strengthened under majority governments and a stronger institutional environment. Finally, our duration dependence analysis suggests that banking, currency, and twin and triple crises are more likely to end when they grow older.

Monetary policy, financial shocks and economic activity
Anastasios Evgenidis (U. of Newcastle) and A.G. Malliaris (Loyola U. Chicago)
March 1, 2021
This paper contributes to a deeper understanding of macroeconomic outcomes to financial market disturbances and the central bank’s role in financial stability, by using Bayesian VAR (BVAR) models. We document that a shock that increases credit to non-financial sector leads to a persistent decline in economic activity. In addition, we examine whether the behavior of financial variables is useful in signaling the 2008 recession. The answer is positive as our medium-scale BVAR generates early warning signals pointing to a sustained slowdown in growth. Finally, we suggest that the expansion phase of the business cycle can be subdivided into an early and a late expansion. Based on this distinction, we show that if the Fed had raised the policy rate when the economy moved from the early to late expansion, it could have mitigated the severity of the last recession.

Stress Testing the Financial Macrocosm
J. Doyne Farmer (University of Oxford), et al.
August 30, 2021
What kind of models do we need to guide us through the next crisis? If past crises are any indication, we need to explore new approaches. During the Great Financial Crisis, the models that existed at the time were of little value because they focused on firm-level interactions and did not capture the system-wide dynamics that fueled the crisis. In this paper, we sketch a vision for a new approach to understanding and mitigating financial and economic crises. We argue that next-generation stress test models must take a comprehensive a view of the financial macrocosm to enable the regulator to effectively regulate and supervise the macro-financial dynamics of the global economy.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return

By James Picerno

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Technical Value Scorecard Report For The Week of 9-17-21

Relative Value Graphs

This week’s results are interesting as the divergences between growth/low beta and value/cyclical sectors are not as evident as…

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Relative Value Graphs

  • This week’s results are interesting as the divergences between growth/low beta and value/cyclical sectors are not as evident as over the last few months.
  • Transports are the most overbought sector, albeit not at a very high score. Energy has moved up as well. That said, materials and industrials, two other sectors affiliated with cyclical sectors, are the most oversold sectors.   
  • Energy stocks had a great week, beating the S&P by over 3.5%. Over the last four weeks, it has been the best performing sector with an excess return of 7.42%.
  • Most factors/indexes remain oversold, with small and mid-cap stocks the most oversold. Inflation, worker shortages, and higher wages have a more significant adverse effect on these companies than many larger S&P 500 companies.

Absolute Value Graphs

  • Materials and Industrials are the only sectors oversold on the absolute graphs. Like small and mid-caps, higher wages and input costs are weighing on those sectors. Discretionary is the most overbought sector, but with a score just north of 50%, it has room to strengthen before we offer caution. Energy, trading better due to higher crude and natural gas prices, had the largest increase in its absolute score. It is overbought but not terribly so.
  • The S&P 500, bottom-right in the second set of graphs, is overbought as well, but within the year’s range. Its low scores earlier in the week almost brought it to fair value. For now, fair value seems to mark the lows for any local sell-off.  
  • There are no sectors more than two standard deviations from its 50 or 200 dma. The only close one is Technology at 1.75 standard deviations above its 200 dma.
  • Broadly speaking, there is little in this report to offer a warning that the recent sell-off could worsen. The new trend worth consideration is the bifurcation of the cyclical sectors due to inflationary concerns on profit margins.

Users Guide

The technical value scorecard report is one of many tools we use to manage our portfolios. This report may send a strong buy or sell signal, but we may not take any action if other research and models do not affirm it.

The score is a percentage of the maximum score based on a series of weighted technical indicators for the last 200 trading days. Assets with scores over or under +/-70% are likely to either consolidate or change the trend. When the scatter plot in the sector graphs has an R-squared greater than .60 the signals are more reliable.

The first set of four graphs below are relative value-based, meaning the technical analysis is based on the ratio of the asset to its benchmark. The second set of graphs is computed solely on the price of the asset. At times we present “Sector spaghetti graphs” which compare momentum and our score over time to provide further current and historical indications of strength or weakness. The square at the end of each squiggle is the current reading. The top right corner is the most bullish, while the bottom left corner is the most bearish.

The ETFs used in the model are as follows:

  • Staples XLP
  • Utilities XLU
  • Health Care XLV
  • Real Estate XLRE
  • Materials XLB
  • Industrials XLI
  • Communications XLC
  • Banking XLF
  • Transportation XTN
  • Energy XLE
  • Discretionary XLY
  • S&P 500 SPY
  • Value IVE
  • Growth IVW
  • Small Cap SLY
  • Mid Cap MDY
  • Momentum MTUM
  • Equal Weighted S&P 500 RSP
  • Dow Jones DIA
  • Emerg. Markets EEM
  • Foreign Markets EFA
  • IG Corp Bonds LQD
  • High Yield Bonds HYG
  • Long Tsy Bonds TLT
  • Med Term Tsy IEI
  • Mortgages MBB
  • Inflation TIP
  • Inflation Index- XLB, XLE, XLF, and Value (IVE)
  • Deflation Index- XLP, XLU, XLK, and Growth (IWE)

The post Technical Value Scorecard Report For The Week of 9-17-21 appeared first on RIA.

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Energy & Critical Metals

Canoo Stock May Be Headed for the Junk Heap Before Long

If electric vehicle manufacturer Canoo (NASDAQ:GOEV) stock ends up imploding, it wouldn’t be for nothing.

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If electric vehicle manufacturer Canoo (NASDAQ:GOEV) stock ends up imploding, it wouldn’t be for nothing.


Entering the public market via a business combination with a special purpose acquisition company, GOEV stock offered a tantalizing proposition to retail investors.

Unlike traditional initial public offerings, SPACs represent a far more democratized process. In a typical IPO, underwriters distribute new issues of a soon-to-be-public company to their choicest clients for pure profitability reasons.

As a result, this primary market transaction invariably butts out regular retail investors, who are forced to buy shares on the open market.

On the other hand, once a SPAC launches its own IPO, its equity units are free for the buying. From pre-merger announcement to post-business combination, the average Joe or Jane investor can participate in any phase of a SPAC offering.

Hopefully, though, the sponsors behind the blank-check firm know what they’re doing. That might not have been the case for what eventually became GOEV stock.

On a year-to-date basis to Sept. 13, shares of the EV maker are down 44%. Over the trailing 365-day period, GOEV stock has shed almost the exact same magnitude, down 45%.

From legal troubles to questions about Canoo’s ability to meet its production goals, it hasn’t been an easy time leading this company.

Even promising long-term catalysts don’t seem to make much of a lasting difference for GOEV stock.

For instance, our own Chris MacDonald pointed out in late August that the “National Highway Traffic Safety Administration (NHTSA) is set to consider higher penalties for automakers who fail to meet fuel efficiency requirements. While a negative catalyst for traditional auto makers, this announcement turns out to be very bullish for EV-focused companies.”

Predictably, GOEV stock popped on the news but since the announcement, the equity unit’s air has been slowly bleeding out. Is it time to jump ship?

Subscription Service Might Not Pan Out for GOEV Stock

To be fair, Canoo is an EV manufacturer geared toward the millennial lifestyle. In that sense, the company is going to do things differently because millennials do things differently. Thus, there’s an argument to be had that you shouldn’t judge GOEV stock based on traditional metrics.

To an extent, I can appreciate that line of thought. Moreover, Canoo’s ethos is directed toward its core consumer demographic. While I might never get over the toaster-on-wheels look of its flagship EV, Canoo asserts that the design concept is in line with the average millennial’s adventurous personality.

Also, GOEV stock benefits from another millennial quirk — an apparent inability to commit. Mostly, this deals with relationships but I suppose that could translate to professional and financial matters as well. Either way, Canoo has young consumers covered with its planned subscription service model.

While that sounds intriguing for GOEV stock, in practice, subscription-based business models haven’t worked out well for legacy automakers.

Most notably, BMW (OTCMKTS:BMWYY) initiated such a service and then quickly abandoned the project (though reported early this year that the German automaker is reconsidering the model).

But BMW wasn’t alone in encountering headwinds with subscriptions, with most consumers balking at the price tag. For instance, BMW had a $3,700 per month program, which was simply ridiculous. Rival Mercedes-Benz offered a similar (though not identical) plan costing almost $1,100. A relative discount, yes, but a steep price nonetheless.

Of course, Canoo is planning to offer a much more reasonable subscription fee, and subscribers can quit at any time. While appealing on some levels, the millennial focus in this case works against GOEV stock.

According to a Wall Street Journal report, the “average age of vehicles on U.S. roadways rose to a record 12.1 years” in 2020, suggesting that at some point, vehicle owners want their payments to end.

Switch to Outright Sales?

An easy answer to the above problem is for Canoo to abandon subscriptions, as other automakers have, and move exclusively to direct sales. That could work but it would raise the question about other administrative concerns, such as who’s going to insure a Canoo EV?

Generally speaking, owning an EV will increase your auto insurance rate relative to owning a similar combustion-engine counterpart. Mainly, the reason has to do with cost and specialized parts. Usually, EVs are more expensive than a similarly featured combustion car and while EVs are reliable, when things go wrong, they can get ugly.

On the other hand, crash a Honda (NYSE:HMC) and you can easily acquire original parts. Or, because the automaker is so popular, multiple third-party options exist. You cannot say the same about a specialized EV maker like Canoo.

Therefore, I have too many questions about the viability of Canoo for me to be comfortable with GOEV stock. Yeah, it’s on discount but this is a case where it might be for a reason.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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