Callum Just wondering if you can write something on leveraged ETFs. I was looking at them yesterday. Seems investors have been catching the falling knife. To me, leveraged ETFs and the put call ratio are v interesting as while there's been lots of negative press about stocks, if you look at the flow data, investors seem very willing to buy the dip (not just leveraged but in general, big inflows into equity ETFs).
I think this is one reason why stocks can't bounce. As despite huge month end rebalancing flows, positioning just isn't short.
It's about time US stocks experienced some mean reversion compared to the rest of the world.
1) "As things currently stand, there is a long way to go before we can get excited about stocks vs bonds from a valuation standpoint, and if anything you typically see downside overshoot during periods of mean reversion like this."
2) "Much of the world’s stock markets are going up and enjoying a weaker USD and rotation flows out of US into global markets."
Stocks should outperform bonds in the long run though, so we should expect to see that S&P500 vs Treasuries line sloping from bottom left to top right, no?
Question re the valuation metric - is that earnings yield less bond yield, but standardised?
Thanks John, yes stocks have historically beaten bonds in the long run as the coupon for stocks (dividends) grows over time. But it is cyclical, and we should look to adjust allocations to reflect changes in the cyclical outlook where the evidence is strong enough.
Anyway, on valuations it's a combination of the equity risk premium and the spread between my stock and bond valuation indicators
Callum Just wondering if you can write something on leveraged ETFs. I was looking at them yesterday. Seems investors have been catching the falling knife. To me, leveraged ETFs and the put call ratio are v interesting as while there's been lots of negative press about stocks, if you look at the flow data, investors seem very willing to buy the dip (not just leveraged but in general, big inflows into equity ETFs).
I think this is one reason why stocks can't bounce. As despite huge month end rebalancing flows, positioning just isn't short.
today's crowd has been trained to buy the dip, I'd expect that to continue until beatings change morale or buying power is exhausted
It's about time US stocks experienced some mean reversion compared to the rest of the world.
1) "As things currently stand, there is a long way to go before we can get excited about stocks vs bonds from a valuation standpoint, and if anything you typically see downside overshoot during periods of mean reversion like this."
2) "Much of the world’s stock markets are going up and enjoying a weaker USD and rotation flows out of US into global markets."
Stock vs. bond ratio of US, developed, emerging markets (2000-25): https://substack-post-media.s3.amazonaws.com/public/images/39f7af52-a933-4379-890a-a797cebf5338_1375x860.png
yep, will be interesting to see how this all plays out
Stocks should outperform bonds in the long run though, so we should expect to see that S&P500 vs Treasuries line sloping from bottom left to top right, no?
Question re the valuation metric - is that earnings yield less bond yield, but standardised?
Thanks
Thanks John, yes stocks have historically beaten bonds in the long run as the coupon for stocks (dividends) grows over time. But it is cyclical, and we should look to adjust allocations to reflect changes in the cyclical outlook where the evidence is strong enough.
Anyway, on valuations it's a combination of the equity risk premium and the spread between my stock and bond valuation indicators