Cassandra’s Rally

Published on: July 14th, 2020

Since the March lows, we have ‘enjoyed’ perhaps the most unloved rally Julian has ever encountered in stocks in his career. Like Cassandra before them, a host of luminaries are on the record fighting it. But remember, Cassandra was right. Below Julian addresses why data is turning more negative, supporting the case for the bears and why he is shifting more defensive as the summer rolls on.

Comments

  • CH
    Charlie H.
    14 July 2020 @ 16:49
    2 0
    Great write up Julian. I've never before heard of the term "Cassandra Rally".
  • JU
    John U.
    14 July 2020 @ 17:05
    2 0
    Thank you Julian. Always look forward to your In Focus write ups.
  • GL
    G L.
    14 July 2020 @ 17:29
    0 0
    Thanks Julian.
  • JG
    Johan G.
    14 July 2020 @ 17:59
    1 0
    Thanks Julian, totally agree! Multiple expansion means yield contraction. There is a limit to how far that can go, and I fear we are pretty close!
  • FK
    Firoze K.
    14 July 2020 @ 18:05
    0 0
    Does anyone on here have any suggestions for an alternative for XME for a UK investor?
    • FK
      Firoze K.
      17 July 2020 @ 14:10
      0 0
      Thanks Melville
    • mb
      melville b.
      15 July 2020 @ 00:49
      1 0
      Sure, I ran into the same problem when constructing a portfolio for a UK based friend. Take the ten largest( or however many you want) equity holdings of the ETF and allocate to your portfolio on an equal weight ratio, or weighting closely similar to what is shown in the holdings. The weightings can be found on any finance website on the SRDP website. Trades are free, should make little difference. Better yet....... Worthington Industries Inc WOR 5.09% Commercial Metals Co CMC 5.05% Materion Corp MTRN 5.05% Newmont Corp NEM 5.04% Freeport-McMoRan Inc FCX 4.99% Hecla Mining Co HL 4.77% Allegheny Technologies Inc ATI 4.73% Schnitzer Steel Industries Inc Class A SCHN 4.72% Coeur Mining Inc CDE 4.67% Royal Gold Inc RGLD 4.67%
  • AF
    Anoop F.
    14 July 2020 @ 22:25
    0 0
    Great read and great calls. Thanks Julian.
  • GM
    Guillermo M.
    15 July 2020 @ 00:05
    0 0
    Many thanks, Julian.
  • HH
    Hugh H.
    15 July 2020 @ 00:26
    3 0
    I don't quite understand Julian's view on boomer's forced consumption expectation. Anybody can elaborate on his view, please?
    • JB
      Julian B. | Contributor
      15 July 2020 @ 23:33
      0 0
      Hugh please see above
  • AA
    Alberto A.
    15 July 2020 @ 00:26
    2 0
    Julian this was very thoughtful and super clear regarding the trade ideas and reasons behind it. Love the logic. Quick one: Do you use option for these trades or just buy the underlying straight up (which I'm assuming as you mentioned stops). Thanks again!
    • JB
      Julian B. | Contributor
      15 July 2020 @ 23:33
      0 0
      Alberto to be honest it depends. But typically we just take outright positions. Its cleaner from a portfolio management perspective.
  • MJ
    Matthew J.
    15 July 2020 @ 01:57
    0 0
    What expiry is the SpX 2500 put ? ESUO ? Can’t find it in Interactive Brokers?
    • HH
      Hugh H.
      15 July 2020 @ 02:33
      0 0
      ESU0 means September 2020 E-mini futures
  • DB
    Dan B.
    15 July 2020 @ 10:40
    2 0
    Hi Guys - wondering what demographics are suggesting forced consumption by ageing and ailing Baby Boomers? My general thinking was this generation would be gradually consuming less perhaps
    • SM
      Sean M.
      24 July 2020 @ 02:42
      0 0
      Hey guys- Last August Julian put out a piece showing the correlation of negative interest rates and an increase in savings rates and used Germany, Sweden, and Japan as examples. How does this fit in with the consumption patterns especially if rates go negative?
    • MG
      Marcus G.
      16 July 2020 @ 06:12
      2 0
      Thanks for asking the question and thanks for the replay Julian. "Even demographics suggest forced consumption by ageing and ailing Baby Boomers which will become an inflationary tailwind." I can not see how dis-saving of retirees create, support inflationary pressure. I always heard the narrative that retirees spend less compared to when they were younger and had an income stream. They dis-save because they lack the income-stream and thus need to dis-save in order to support their now lower spending-level. No? On the other hand, if the workforce shrinks because a lot of people retire over time, this may be inflationary due to a changing balance of power between employers and employees, which may lead to higher wage-share.
    • JB
      Julian B. | Contributor
      15 July 2020 @ 23:31
      1 0
      Hi Dan Our demographic model suggest that globally we hit the tipping point on saving in 2016. That's when the the ratio of workers/retirees peaked. So at this point, net net the trend is towards more spending vs saving. Whereby, the spending is a combination of younger millennial, older Gen Zs who are consuming from income and retires, who are dis-saving ie selling assets to fund current spending.
  • km
    ken m.
    15 July 2020 @ 11:20
    0 0
    Always clear and actionable. Thanks!
  • TG
    Thomas G.
    15 July 2020 @ 16:53
    0 0
    Superb. Half the value of RV Pro in my opinion is these reports.
  • MD
    Mike D.
    15 July 2020 @ 19:32
    1 0
    Exceptionally clear and thought-through. Thank you Julian.
  • DR
    Derrick R.
    16 July 2020 @ 13:28
    0 0
    what's it mean to long the ESU0 2500 Puts "at 60 Index Points"...? currently on my platform this one's bid ask is $16.50-17.00
    • JL
      J L.
      18 July 2020 @ 09:52
      0 0
      up not down
    • HM
      Harry M. | Real Vision
      17 July 2020 @ 18:37
      0 0
      Sadly the market went down and not up. So I think this put was worth 60 points and is now only worth 16.5 points. The hedge was unnecessary - up to this point.
  • HS
    Haythim S.
    16 July 2020 @ 17:01
    0 0
    Thanks Julian. I am currently buying some S&P puts as a hedge. I was wondering if someone can explain the proper % of the hedge for some one who holds all other julian’s recommended commodities trades ?
    • HM
      Harry M. | Real Vision
      17 July 2020 @ 18:36
      1 0
      There is no "proper". What are you trying to hedge. All your equities? Some of your equity risk? All your life risk? One way to think about this is to look at how much your stocks go up when the market is up 1%. Thats an estimate of the beta of your portfolio. That gives you an idea of what you stand to lose should equities go down.
  • SO
    Shads O.
    17 July 2020 @ 15:16
    0 0
    Who is this Cassandra? =)
    • MD
      Mike D.
      18 July 2020 @ 22:02
      1 0
      Recall your ancient civilizations course at school. https://en.wikipedia.org/wiki/Cassandra
  • MP
    Michael P.
    19 July 2020 @ 05:31
    0 0
    Grateful if someone could explain why the USD and the S&P500 seem inversely correlated these days. Thank you.
    • HM
      Harry M. | Real Vision
      20 July 2020 @ 23:05
      0 0
      JB has a theory which he calls "American Exceptionalism" which argues that stronger US asset markets create a virtuous cycle viz the dollar. Equities go up. Internationals starved of investment opportunities bring capital into the US to obtain higher returns. Dollar goes up too. Rinse and repeat. Till it stops working. Since US equities are now a funding vehicle for some global central banks there has to be some merit in thinking about this problem this way. How much is an open question.