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The Times They Are A-Changin'

Updated: Jul 20, 2023

Since the COVID bear market bottom on March 23, 2020, the S&P 500 has produced significant gains in less than two years. The upward ride has been remarkably easy for domestic large-caps since then; selling volatility was the key institutional trade over that period.

During that time, the S&P 500 only fell so much as 8% twice until last week’s humdinger, and the S&P 500 hasn’t closed more than 6% below its all-time high since November 2020. Moreover, the index has produced a positive total return in 12 out of the last 13 and 17 out of the past 19 years. Over the past 40 years, the S&P 500 has delivered a negative calendar year total return just six times (with three of those occurring during the tech bubble alone.)

Large-caps and Treasuries have driven investor returns for years, but the times they are a’changin’. We believe previous laggards will become leaders, and we recommend that investors buckle up and continue to buy volatility this year.


To us, it appears that the Fed, after messing up in colossal fashion last year, is now willing to crash the market just to reduce demand, and as we have discussed here in Insights previously, running off the Fed balance sheet while simultaneously raising rates is a recipe for disaster. The Fed is completely powerless to halt supply-driven inflation anyway.

After this month’s horrendous market action-- and today's in particular-- it’s unlikely any altogether hawkish statements will be issued by the Fed this week, so conditions are in place for a cover rally around the Fed’s meeting. But that’s just a swing trade. When you throw in the lack of new Biden stimulus (BBB is now dead and buried out back in the Rose Garden) and soaring gas prices, what with Goldman Sachs, Morgan Stanley and Bank of America all calling for Brent to hit triple digits in the near term— and the far-from-tail-end possibility of a Russia-Ukraine war sending it to $150 a barrel and crashing the whole global economy—we’re compelled to go on the record to call for a recession before the November midterms.

A recession is defined as two consecutive quarters of declining gross domestic product (GDP), which is probably what will have to happen if Goldman Sachs economists and Janet Yellen are to be right about inflation falling back to 2.5% by year end.


I have long considered the real estate market to be driven by two simple factors: jobs and interest rates. The trends for both currently strike us as a little off; consider that initial jobless claims surged from 55k to 286k for the week ending January 15, their third straight increase and the highest weekly print since October.

Like it or not, Wall Street leads Main Street, meaning stocks are the forward-looking indicator, and we don’t expect any particular asset class to escape this year unscathed.


Speaking of other asset classes, I’d like to finish this note by revealing how much I hope and trust that Matt Damon is losing his ass in crypto. He just joined the ranks of Tom Selleck selling reverse mortgages as one of the most irresponsible spokespersons of all time. HODL, ya big dummy.


In the current environment, we recommend:

· securitized credit

· energy stocks

· floating-rate assets such as bank loans

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It is impossible to simultaneously match an index’s return during a bull cycle and also protect capital during a bear cycle. 


Out of the night that covers me, Black as the pit from pole to pole, I thank whatever gods may be For my unconquerable soul. Twenty years ago, in June of 2004, I founded a company called Bebaas, Inc.


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