When most people hear the word “risk,” they think about wild market swings, scary headlines, and losing money overnight, but Howard Marks, Co-Chairman and Co-Founder of Oaktree Capital Management, takes a different approach. In his new video series How to Think About Risk, Marks digs deep into what risk is and how investors should handle it. Spoiler alert: It’s not just about volatility.

The CFA Institute recently summarized the video stream, but I wanted to elaborate on some of Howard Mark’s views.

Let’s break down some key lessons from Marks that can help you rethink your investing approach to risk.

Risk Isn’t Just Volatility

One of the biggest takeaways from Marks’ series is the idea that risk and volatility aren’t the same thing. For years, many

As the November 2024 election draws near, the election outcome will profoundly affect the financial markets. Whether Donald Trump or Kamala Harris wins the presidency, each administration will bring distinct policies creating investment opportunities and potential risks for investors. With a divisive political landscape, it is crucial to understand how these potential outcomes can shape the stock market and your portfolio strategy.

Let’s break down the key sectors that stand to gain from a Trump or Harris presidency and explore the risks investors should be aware of heading into this election outcome.

Investment Opportunities in a Trump Presidency

Energy & Fossil Fuels

If Trump wins, that election outcome will likely favor the traditional energy

We are currently in the “everything market.” It doesn’t matter what you have probably invested in; it is currently increasing in value. However, it isn’t likely for the reasons you think. A recent Marketwatch interview with the always bullish Jim Paulson got his reasoning for the rally.

“It is this cocktail of ‘full support’ at the front end of a bull market which commonly has created an ‘Everything Market’ during the early part of a new bull. That is, for a period, almost everything simultaneously rises – value, growth, small, large, defensive, and cyclical stocks – and usually by a lot.

Short rates are falling, bond yields have declined, money growth is rising, fiscal stimulus has again expanded, and disinflation is still evident; and because of this

Last week, the Federal Reserve made a significant move by cutting its overnight lending rate by 50 basis points. This marks the first rate cut since 2020, signaling the Fed is aggressively supporting the economy amid a backdrop of softening economic data. For investors, understanding how similar rate cuts have historically impacted markets and which sectors tend to benefit is key to navigating the months ahead.

In this post, we will explore the historical market performance following similar 50-basis-point rate cuts, highlight the best-performing sectors and market factors after such cuts, and outline three critical risks investors should be aware of heading into year-end.

Historical Outcomes To Rate Cuts

A 50-basis-point rate cut, especially the first

It certainly seems that technological advances make our lives better. Instead of writing a letter, stamping it, and mailing it (which was vastly more personal), we now send emails. Rather than driving to a local retailer or manufacturer, we order it online. Of course, we mustn’t dismiss the rise of social media, which connects us to everyone and everything more than ever.

Economists and experts have long argued that technological advances drive U.S. economic growth and productivity. As innovations emerge, they play a crucial role in shaping the economy, improving efficiency, and enhancing productivity across various sectors. From artificial intelligence to automation, the benefits of technological progress are widespread and profound.

For example,

Since the end of the “Yen Carry Trade” correction in August, bullish positioning has returned with a vengeance, yet two key risks face investors as September begins. While bullish positioning and optimism are ingredients for a rising market, there is more to this story.

It is true that “a rising tide lifts all boats,” meaning that as the market rises, investors begin to chase higher stock prices, leading to a virtual buying spiral. Such leads to an improvement in market breadth and participation, which supports further price increases. Following the August decline, the chart below shows the improvement in the NYSE advance-decline line and the number of stocks trading above their respective 50-day moving averages (DMA).

Given that “for every buyer, there

In a recent discussion with Adam Taggart via Thoughtful Money, we quickly touched on the similarities between the U.S. and Japanese monetary policies around the 11-minute mark. However, that discussion warrants a deeper dive. As we will review, Japan has much to tell us about the future of the U.S. economically.

Let’s start with the deficit. Much angst exists over the rise in interest rates. The concern is whether the government can continue to fund itself, given the post-pandemic surge in fiscal deficits. From a purely “personal finance” perspective, the concern is valid. “Living well beyond one’s means” has always been a recipe for financial disaster.

Notably, excess spending is not just a function of recent events but has been 45 years in the making. The

As noted in this past weekend’s newsletter, following the “Yen Carry Trade” blowup just three weeks ago, the market has quickly reverted to more extreme short-term overbought conditions.

Note: We wrote this article on Saturday, so all data and analysis is as of Friday’s market close.

For example, three weeks ago, the growth sectors of the market were highly oversold, while the previous lagging defensive sectors were overbought. That was not surprising, as the growth sectors of the market were the most exposed to the “Yen Carry Trade. “

We saw much the same in the Risk Range Analysis (Note: both sets of analysis presented are published weekly in the Bull Bear Report).

As explained in the weekly report:

Two critical points. First, three weeks ago,

The latest retail sales report seems to have given Wall Street something to cheer about. Headlines touting resilience in consumer spending increased hopes of a “soft landing” boosting the stock market. However, as is often the case, the devil is in the details. We uncover a more troubling picture when we peel back the layers of this seemingly positive data. Seasonal adjustments, downward revisions, and rising delinquency rates on credit cards and auto loans suggest a more cautious view. The consumer—the backbone of the U.S. economy—may be in more trouble than the headline numbers indicate.

The Mirage of Seasonal Adjustments

The July retail sales report showed a sharp increase of 1.0% month-over-month, surpassing expectations. However, while that number

A Universal Basic Income (UBI) sounds great in theory. According to a previous study by the Roosevelt Institute, it could permanently increase the U.S. economy by trillions of dollars. While such socialistic policies sound great in theory, history, and data, they aren’t the economic saviors they are touted to be.

What Is A Universal Basic Income (UBI)

To understand why the theory of universal basic income (UBI) is heavily flawed, we need to understand what UBI is.

“Basic income, also called universal basic income (UBI), is a public governmental program for a periodic payment delivered to all citizens of a given population without a means test or work requirement. Basic income can be implemented nationally, regionally, or locally, and is an unconditional

On Monday morning, investors woke up to plunging stock markets as the “Yen Carry Trade” blew up. While media headlines suggested the sell-off was due to fears of a recession, slowing employment growth, or fears over Israel and Iran, such is not the case. As previously noted, headline events like the economy, employment, or geopolitical conflict are quickly evaluated and hedged by market participants. However, as we saw on Monday, what sparks a global sell-off is always an “unexpected, exogenous event.” To wit:

“If I gave you a bunch of ingredients such as nitrogen, glycerol, sand, and shell, you would probably stick them in the garbage and think nothing of it. They are innocuous ingredients and pose little real danger by themselves. However, you make dynamite

We noted last Friday that over the previous few years, a handful of “Mega-Capitalization” (mega-market capitalization) stocks have dominated market returns and driven the bull market. In that article, we questioned whether the dominance of just a handful of stocks can continue to drive the bull market. Furthermore, the breadth of the bull market rally has remained a vital concern of the bulls. We discussed that issue in detail in “Bad Breadth Keeps Getting Worse,”
“While the market is making all-time highs as momentum continues, its breadth is narrowing. The number of stocks trading above their respective 50-DMA continues to decline as the market advances, along with the MACD signal. Furthermore, the NYSE Advance-Decline line and the Relative Strength Index (RSI)

In 2022, we discussed the market’s deviations from long-term growth trends. That discussion centered on Jeremy Grantham’s commentary about market bubbles. To wit:

“All 2-sigma equity bubbles in developed countries have broken back to trend. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S. in 1929 and 2000 and in Japan in 1989. There were also superbubbles in housing in the U.S. in 2006 and Japan in 1989. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average.

Today in the U.S. we are in the fourth superbubble of the last hundred years.”

Are we currently in a market bubble? Maybe. Honestly, I have no idea. The problem is that market bubbles are

The latest retail sales data suggests a robust consumer, leading economists to become even more optimistic about more robust economic growth this year. To wit:

“It has been two years since forecasters felt this good about the economic outlook. In the latest quarterly survey by The Wall Street Journal, business and academic economists lowered the chances of a recession within the next year to 29% from 39% in the January survey. That was the lowest probability since April 2022, when the chances of a recession were set at 28%.

Economists don’t think the economy will get even close to a recession. In January, they, on average, forecast sub-1% growth in each of the first three quarters of this year. Now, they expect growth to bottom out this year at an

Is immigration why employment reports from the Bureau of Labor Statistics (BLS) continue defying mainstream economists’ estimates? Many are asking this question as the U.S. experiences a flood of immigrants across the southern border. Concurrently, many young college graduates continue to complain about the inability to receive a job offer. As noted recently by CNBC:

The job market looks solid on paper. According to government data, U.S. employers added 2.7 million people to their payrolls in 2023. Unemployment hit a 54-year low of 3.4% in January 2023 and ticked up just slightly to 3.7% by December.

But active job seekers say the labor market feels more difficult than ever. A 2023 survey from staffing agency Insight Global found that recently unemployed

With the last half of March upon us, the blackout of stock buybacks threatens to reduce one of the liquidity sources supporting the bullish run this year. If you don’t understand the importance of corporate share buybacks and the blackout periods, here is a snippet of a 2023 article I previously wrote.

“The chart below via Pavilion Global Markets shows the impact stock buybacks have had on the market over the last decade. The decomposition of returns for the S&P 500 breaks down as follows:“

6.1% from multiple expansions (21% at Peak),

57.3% from earnings (31.4% at Peak),

9.1% from dividends (7.1% at Peak), and

27% from share buybacks (40.5% at Peak)
Yes, buybacks are that important.

As John Authers pointed out:

“For much of the last

Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution of the market into a “casino” following the pandemic, where retail traders have increased their speculative appetites.
“Such is unsurprising, given that retail investors often fall victim to the psychological behavior of the “fear of missing out.” The chart below shows the “dumb money index” versus the S&P 500. Once again, retail investors are very long equities relative to the institutional players ascribed to being the “smart money.””
“The difference between “smart” and “dumb money” investors shows that, more often than not, the “dumb money” invests near market tops and sells near market bottoms.”
That

Presidential elections and market corrections have a long history of companionship. Given the rampant rhetoric between the right and left, such is not surprising. Such is particularly the case over the last two Presidential elections, where polarizing candidates trumped policies.

From a portfolio management perspective, we must understand what happens during election years concerning the stock market and investor returns.

Since 1833, the S&P 500 index has gained an average of 10.03% in the year of a presidential election. By contrast, the first and second years following a Presidential election see average gains of 6.15% and 6.94%, respectively. There are notable exceptions to positive election-year returns, such as in 2008, when the S&P 500 sank nearly

Regarding the surprisingly strong employment data, Fed Chair Powell said the quiet part out loud. The media hopes you didn’t hear it as we head into a contentious election in November.
Over the last several months, we have seen repeated employment reports from the Bureau of Labor Statistics (BLS) that crushed economists’ estimates and seemed to defy logic. Such is particularly the case when you read commentary about the state of the average American as follows.
“New Yorker Lohanny Santos publicly vented her frustration after her attempts to go door-to-door with her CV in hand in the hope of finally landing a job were unsuccessful.
It would appear that other young jobseekers could relate to Lohanny’s struggles. The USA and Canada rank fifth out of seven when it

“Giant corporations are using inflation as cover to raise their prices & boost their profits. In industry after industry, we have too little competition & companies have too much power to increase prices. I’ve been calling out this corporate profiteering & price gouging” – Sen. Elizabeth Warren
Another version of this argument as of late is accusing “Big Oil” of price-gouging consumers to make record-profit margins at a time when consumers are struggling. As Andrew Wilford penned:
“High corporate profits are the smoking gun that proves businesses are using ‘inflation’ as a cover for driving up prices simply because they want more money. This vague finger-pointing even took the form of a messaging bill aimed at oil ‘price-gouging’ that would have done nothing to

High inflation has captured the headlines as of late particularly as CPI recently hit the highest levels since 1981. Some are even suggesting we will face hyperinflation. However, while inflation is certainly present, the question to be answered is whether it will remain that way, or if the worst may already be behind us?
To answer that question, let’s define the difference between an inflationary increase and hyperinflation.
Not surprisingly, as Milton Friedman stated,
“Inflation is always and everywhere a monetary phenomenon. It is always and everywhere a result of too much money, of a more rapid increase of money, than of output.

Moreover, in the modern era, the important next step is to recognize that today the governments control the quantity of money so

Market perspective is essential in avoiding investing mistakes. With CNBC airing “Markets In Turmoil” every time the market dips, it’s no wonder investor sentiment is now the lowest we have seen financial crisis lows.

Of course, as shown, extremely negative investor sentiment tends to be the hallmark of the bottom of corrections and bear markets.
Nonetheless, now that we are connected constantly to financial media, we are inundated with headlines designed to get “clicks” more than delivering real news. As we discussed in “Investor Resolutions For 2022,” the biggest driver of investing failure over time is psychology.
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham.

The Anchoring Problem
“Anchoring is a

Hiking rates into a wildly overvalued market is potentially a mistake. So says Bank of America in a recent article.

Optimists expecting the stock market to weather the rate-hike cycle as they’ve done in the past are missing one important detail, according to Bank of America Corp.’s strategists.While U.S. equities saw positive returns during previous periods of rate increases, the key risk this time round is that the Federal Reserve will be “tightening into an overvalued market,” the strategists led by Savita Subramanian wrote in a note.“The S&P 500 is more expensive ahead of the first rate hike than any other cycle besides 1999-00,” they said.” – Yahoo Finance

While many media experts suggest that investors should not be concerned about rate hikes, BofA

“Sell Energy Stocks” Was Originally Published At Marketwatch.com

Sell energy stocks? Such certainly seems counter-intuitive advice given high oil prices, geopolitical stress, and surging inflation. However, some issues suggest this could indeed be the time to “sell high.”

Before we go further, it is essential to state that I am not recommending selling energy stocks in total. As is always the case, portfolio management is about minimizing risk and preserving capital. Reducing energy exposure by selling portions of existing positions is more prudent.

As shown, there is a high correlation between the price of oil, the energy sector as represented by SPDR Energy ETF (XLE,) and even oil stocks like Exxon Mobil (XOM.) Therefore, if oil prices decline,

The market selloff into January rattled investors as concerns of “So Goes January, So Goes The Year” began to dampen expectations. Combined with a more aggressive stance from the Federal Reserve, rising inflation, and a reduction in liquidity, investor concerns seem to be well-founded.
As discussed last week in “Passive ETFs Are Hiding A Bear Market,” the “blood bath” in the high-beta stocks is particularly humbling for the retail crowd that piled into risk with reckless abandon last year.
“Probably one of the best representations of the disparity between what you see ‘above’ and ‘below’ the surface is the ARKK Innovation Fund (ARKK). While the S&P 500 index was up roughly 27% in 2021, ARKK is down more than 20%. That is quite a performance differential but

Previously, we discussed Modern Monetary Theory (MMT) and its one limitation of inflation. However, as is always the case when “theories” collide with “reality,” the tenants of the theory are quickly discarded.
There is no doubt that since 2020 both Republicans and Democrats alike have shunned fiscal responsibility for the short-term gratification of MMT. Ms. Kelton tweeted such earlier this year.

The writing is hilariously on the wall here, but people want to pretend that a bipartisan, multi-trillion dollar climate-infrastructure package can and must be “paid for” with new tax revenue. Wake me when reality sets in.
— Stephanie Kelton (@StephanieKelton) March 15, 2021

From the $2.2 trillion CARES Act to the $900 billion HERO Act, to President Biden’s $1.9

The “Fear Of Missing Out” has infected retail and hedge funds alike as they ramp up exposure to chase performance.
We have previously discussed the near “mania” of retail investors taking on exceptional risk in various manners. From increasing leverage, engaging in speculative options trading, and taking out personal loans to invest, it’s all evidence of overconfident investors.
However, that “risk appetite” is not relegated to retail investors alone. Professional managers, institutions, and hedge funds are “all in” as well.

.

Money Flows Are Huge
The evidence of “professional investor” exuberance is the massive inflows of capital. The first half of 2021 outpaced every year since the Financial Crisis lows.

.
That surge in inflows came from a rotation of foreign

“Capitalism” is not the same as “Corporatism.” Yet, whenever you mention capitalism, there is palpable anger arising from a fundamental widespread misbelief.
“‘Evil’ corporations are greedy and take advantage of the system for their benefit.”
I have two words for you – “No S***.”
Such does not mean capitalism has become “broken.” On the contrary, capitalism created the opportunity for corporations to exist. Things went wrong when corporations took advantage of the system.
However, that isn’t their fault. It is yours and mine. 
As the saying goes, “Don’t hate the player. Hate the game.”
Let’s explore the differences, the problem, and the solution.
Capitalism Isn’t Broken.
I recently took a poll about “capitalism.”

Is capitalism, as we know it, dead?
— Lance

Last weekend, I joined Richard Rosso, CFP and Danny Ratliff, CFP to discuss the outlook for the markets for the rest of this year and take questions from our attendees.
We cover a lot of ground from:
The financial markets now and what to expect. 
Valuations
Inflation outlook.
The dollar.
Why Government actions are destroying the foundation of capitalism.
Plus some interesting questions on 
Why you shouldn’t put real estate in a tax-deferred account.
Better ways to build tax-free retirement funds
Cryptocurrencies and gold

Plus much more.

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Taper Is

“The strong economic recovery will not get interrupted by inflation or a credit crunch, and the market will soon reach 4,500.” – Ed Yardeni via Advisor Perspectives
After discussing BofA’s view of why the market could drop to 3800,  I thought it fair to discuss a more optimistic view.
BofA’s view of a market correction was a function of the more exuberant “optimism” in the market.
To wit:
“This analysis is interesting, particularly when analysts are rushing to upgrade both economic and earnings estimates.”
“More importantly, investors are incredibly long-biased in portfolios, with equity allocations reaching some of the highest levels in history.”
What Subramanian questioned is whether all the “good news” is already “priced in?”

“Amid increasingly euphoric