Investors often go through period of hightened risk aversion and focus too much on avoid losses while ignoring the opportunties. Ther are many reason that can motivate investor to stay out of the market, including: Whichever reason overly risk averse investor have, the belive is that ‘market correction is coming’ and by pulling out of the market he or she can avoid losses. One of the greatest investors when asked if he positioning portoflio for expected recession said: “Far more money has been lost by investors in preparing for corrections, or trying to anticipate corrections, than has been lost in…

Inflation is cooling, due to restrictive monetary policy that is starting to impact the aggregated demand. Main tool used by the central bank to reduce aggregated demand is interest rates increases. Higher rates are helping to reduce consumption through making savings relatively more appealing, and helping to reduce business investments and export through increase in financing costs. Furthermore two factors are negatively impacting employment, which further reduces aggregate consumer spending and reduce price pressures. AD = C + I + G + ( X – M ) where: AD = aggregate demandC = consumptionI = investmentG = government spendingX =…

For over a decade Wall Street has been repeating that ‘There Is No Alternative’ (TINA) to equities, but this year for the first time Wall Street suggest ‘There Are Reasonable Alternatives’ (TARA). There is one reason for this significant shift in narrative – real yields came back. Real yield is a difference between the nominal interest rate and the inflation rate (expected or actual). From return perspective, real yield reflects impact of the risk free rate on purchasing power. If it’s positive investors are able to grow their purchasing power without taking on risk. From a time perspective, real yield…

  Central banks are focusing on defeating persistently above-target inflation, by performing the most aggressive tightening in 4 decades: FED 500 bps since March 2022 (5% in 14 months) BOE 440 bps since December 2021 ECB 375 bps since July 2022 This tightening ended global bull market of 2021 and slashed valuations and pierced bubbles in the most speculative markets. In 2023 markets recouped some of the 2022 losses. Tape remains fragile and consensus is that hikes have a delayed impact on the economy and will eventually bring recession. Any monetary policy choice from now on has an increased risks:…

At the end of this week we saw increased volatility. VIX has spiked in last two days amid anxiety over Silicon Valley Bank (SVB) default risk and potential implications for the regional banks and private equity sectors, and overall increase in systemic risk. VIX has spiked 45% this week, and 20% alone on Friday, when it temporary touched 28.97 – highest reading since October’22 sell-off, with option volume 3.7x the typical daily volume. Calls made 70% of volume and the put-call ratio was at 1.3 compare to average of 1.5 over 2022. SVB had billions in deposits of his Venture…

End of 2021 marks the peak of the raging bull market supported by a fast recovering economy and record fiscal and monetary stimulus. At that time, the risk of inflation and overheating of the economy were discussed by everyone. Valuations were on the peak and therefore any disappointments were severely punished by the market (the most in recent history). In Q1 the market was unforgiving for missing earnings.  In contrast in Q2 – earnings misses are not punished at all. This is because sentiment has already become bearish. Early in the year market has significantly declined and valuations have shrunken.…