Investment Ideas From the Edge of the Bell Curve
Brian Chu thinks so.
📢New WNPI episode out!
– The case for #gold stocks in 2024
– Oil's role in valuing gold miners
– Assessing four main reasons for holding gold
– 5 ASX gold stocks on Brian Chu's radar
– Plus, Brian’s BIG prediction he hopes doesn’t come truehttps://t.co/exeUj2Of1j— Fat Tail Daily (@FatTailDaily) December 15, 2023
It’s that time of the year.
Who are 2023’s worst performers on the All Ords?
Here’s the top ten.
What team are you on?
Team soft landing or team hard landing?
Team HL was winning early in the year.
But Team SL has taken the lead heading into 2024. For many, that lead is insurmountable now.
Prominent US economist Claudia Sahm (of Sahm Rule fame) is a vocal Team SL.
We were told that 2023 was impossible:
– Big disinflation.
– Unemployment low.
– Growth high.We got it. This time is different. The burden of proof is on the #TeamHardLanding. https://t.co/LfkiTxgK0m
— Claudia Sahm (@Claudia_Sahm) December 14, 2023
For something that is looking less and less likely, we sure are talking about it a lot in 2023.
Recession.
Will it come? Won’t it?
Widely predicted (especially in the US), the recession has not materialised.
Today, NAB chairman Phil Chronican said he expects Australia to avoid a recession.
The AFR said Chronican thinks we’ll ‘tiptoe to a soft landing’.
Can you tiptoe your way to a soft landing? Clive James would seethe at that mixed metaphor. Here’s James from the linked essay:
‘The language has always changed, so to protest looks reactionary. If there were no reactionaries, however, deterioration would become galloping decay. In reality, decay does not gallop, but we all know what a horse is even if we have not ridden one, so everyone realises, so far, that “galloping” is being used metaphorically. When all the horses have gone, “galloping” will just mean “rapid”. After a galloping shave that spattered the bathroom mirror like a loose cannon, he honed in on his car, but when he could not find his keys he was ground to a halt by the awful realisation that he had shot himself in the foot.
‘You know what I mean, even though every component of the sentence has lost touch with its own history. The typical prose of the present has no past. Whether it has a future remains to be seen.’
On the topic of bombed out stocks rebounding…
BNPL Zip is up 120% since early October.
Like Carvana, the buy now, pay later fintech shed almost all its value in recent years.
Zip fell 98% from a peak in February 2021 to October 2023.
But some value hounds are returning to the stock.
Or maybe not value hounds but growth investors scratching an old itch.
The animal spirits are back.
Bombed out Carvana is up 1,000% in 2023.
The online used car retailer famously fell ~98% from an all-time high in August 2021 to early January 2023.
But the company has rebounded since.
Obviously not even close enough to make whole investor who bought at or near the peak.
What should we make of Carvana’s 2023 rebound?
The Fed’s dovish statement — and a dot plot showing predictions of three interest rate cuts next year — is sending stocks higher.
And the Dow Jones Industrial Average became the first major US index to hit new highs since the Fed began its hiking cycle.
The index — containing only 30 stocks — has risen for six weeks straight.
Some may find it odd that its the Dow of all indices to register new highs. But there’s a sound explanation. As the Wall Street Journal reported:
‘One of the reasons the Dow set a record milestone ahead of the other indexes is that it didn’t fall nearly as far on the way down. Thanks to its composition of mostly old-economy stocks, the index was insulated from some of the pressure on the broader S&P 500 and technology-focused Nasdaq Composite.
‘The Dow is actually trailing the other benchmarks in 2023: The S&P 500 has added 23% and is trading at its highest level of the year; it is within 1.9% of its previous all-time high. The Nasdaq Composite Index has advanced 41% but is off 8.2% from its last record.’
Some are confused by the Dow’s run, though.
You don't hear much about Dow Theory anymore. But practitioners would caution about the non-conformation between industrials and transports…
Industrials at all-time highs… pic.twitter.com/altfBwvKiH
— Greg Canavan (@gcanavan2) December 15, 2023
The Dow Theory claims that the market is in a true uptrend if both the industrials and transportations register similar material moves higher.
Under the theory, the market should not call a secular uptrend based on the Dow’s record high if transportations aren’t similarly rising.
As Greg pointed out, transports aren’t rising.
not confirmed by the transports… pic.twitter.com/w566K25rtt
— Greg Canavan (@gcanavan2) December 15, 2023
Here’s a neat way to visualise the RBA’s performance.
Matt Cowgill — ‘with a few lines of R code’ — charted every RBA forecast of the unemployment rate since 1990 against the actual unemployment rate.
Neat!
https://twitter.com/MattCowgill/status/1735165732533714947
And here’s another great chart from Greg.
This one shows the percentage of S&P500 stocks trading at overbought levels. It’s the highest percentage in over 30 years…
Market very stretched here. internals all at points of last few S&P500 peaks. Could well be the 'internal peak' for the market.
S&P500 stocks with RSI in overbought territory at highest reading in over 30 years… pic.twitter.com/qdPeYqr8Tz
— Greg Canavan (@gcanavan2) December 14, 2023
Greg has some great charts.
Yesterday’s was a perfect example.
The chart shows the Nasdaq stocks within 20% of their 52-week highs. In a genuine bull market — like the one in 2021 — the number of stocks within their 52-week highs is very high. It was 72% in 2021.
Today, it’s about 40%.
Chart shows no. of NASDAQ stocks within 20% of their 52wk highs. In a genuine bull market ('21) this no. is high (got to 72%). In bear market rallies, the no. is much lower (around 45% in Feb and July 23 peaks). currently 41% pic.twitter.com/o3gS9oO1Gx
— Greg Canavan (@gcanavan2) December 12, 2023
The market is getting greedy.
And has been getting greedy since late October.
That greed has pushed the Dow Jones to a record high.
The question is whether this rally is sustainable.
Our editorial director Greg Canavan does not think so. You can hear why here.
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Investment ideas from the edge of the bell curve.
Go beyond conventional investing strategies with unique ideas and actionable opportunities. Our expert editors deliver conviction-led insights to guide your financial journey.
All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.
The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.
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